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Performance Audit
Department of
Administration—
Information Services Division and
Telecommunications Program Office
Performance Audit Division
Debra K. Davenport
Auditor General
SEPTEMBER • 2005
REPORT NO. 05 – 11
A REPORT
TO THE
ARIZONA LEGISLATURE
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting services
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Senator Robert Blendu, Chair Representative Laura Knaperek, Vice Chair
Senator Carolyn Allen Representative Tom Boone
Senator Gabrielle Giffords Representative Ted Downing
Senator John Huppenthal Representative Pete Rios
Senator Harry Mitchell Representative Steve Yarbrough
Senator Ken Bennett (ex-officio) Representative Jim Weiers (ex-officio)
Audit Staff
Melanie Chesney, Director
Dale Chapman, Manager and Contact Person
Channin DeHaan, Team Leader
Aaron Cook
Jay Dunkleberger
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
September 26, 2005
Members of the Arizona Legislature
The Honorable Janet Napolitano, Governor
Mr. Jerry Oliver, Interim Director
Arizona Department of Administration
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Department of
Administration—Information Services Division and Telecommunications Program Office. This
report is in response to a November 20, 2002, resolution of the Joint Legislative Audit Committee.
The performance audit was conducted as part of the sunset review process prescribed in Arizona
Revised Statutes §41-2951 et seq. I am also transmitting with this report a copy of the Report
Highlights for this audit to provide a quick summary for your convenience.
As outlined in its response, the Department of Administration agrees with all of the findings and
plans to implement or implement in a different manner all of the recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on September 27, 2005.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
Services:
The Information Services Division (Division) delivers state-wide information technology services to
executive branch agencies and provides technology services to support internal functions within
the Department of Administration (Department). In addition to eight positions that report to the
assistant director and provide administrative support and plan-ning,
the Division provides services in five main areas:
􀁺􇩉 Information Processing Center—Operates and main-tains
the Department’s data center, which provides
data processing and storage services for state agen-cies
such as the Arizona Health Care Cost
Containment System, the Arizona Department of
Transportation, and the Department of Revenue.
􀁺􇩓 Security—Conducts a variety of security services for
the Department and other state agencies, such as
providing state employees with computer system and
network security access, and security training for
department employees.
􀁺􇩉 Internal Technology—Provides support for the
Department’s desktop computers, operates the
Department’s internal agency network, and supports
the Department’s Arizona Financial Information
System and the Human Resources Information
Solution.
􀁺􇩆 Finance and Planning—Provides budget, planning,
and financial analysis to the Division and determines
the rates agencies are charged for services. This sec-tion
also administers the Department’s 9-1-1 telecom-munications
services.
􀁺􇩃 Customer Care Services—Provides liaison services
and customer support to the Division’s internal and
external customers and houses the state switch-board,
which answers calls to a central state number
and routes them to the appropriate person or agency.
Facilities:
The Department’s headquarters are located at 100 North
15th Avenue in Phoenix and are leased under the private
lease-to-own (PLTO) program. In fiscal year 2005, the
PROGRAM FACT SHEET
Department of Administration
Information Services Division
Division revenue:
$27.4 million (fiscal year 2005, estimated)
Division staffing:
138.75 filled postions and 26.9 vacancies (as of July 2005)1
Office of the Auditor General
Security—10
Customer Care
Services—20.35
Assistant
Director—7
Finance and
Planning—8.5
Internal
Technology—32.9
Information Processing
Center—60
$0
$5
$10
$15
$20
$25
$30
$35
$40
FY2003 FY2004 FY2005 (est.)
Millions
Technology and Telecommunications Fund
1 Includes 11 FTE funded by the Telecommunications Program Office appro-priation
but housed in the Division.
Division used approximately 21,000 square feet at this facility and paid an annual lease fee of
approximately $419,000. In addition, the Division leases office or storage space in three other
buildings in Phoenix and two buildings in Tucson, and paid annual lease fees of approximately
$390,000 for those facilities.
Equipment:
In addition to common office equipment, the Division has specialized equipment for which it has
state- or department-wide responsibility, such as the mainframe system, backup power genera-tors,
servers, and other network equipment.
Mission:
The Division has adopted the Department’s mission:
To provide effective and efficient support services to enable government agencies, state employ-ees,
and the public to achieve their goals.
Goals:
The Division has adopted the Department’s three goals:
1. To deliver customer service second to none.
2. To attract and retain a high-performance team of employees.
3. To aggressively pursue innovative solutions and/or opportunities.
Adequacy of performance measures:
The Division’s 66 performance measures are generally adequate and include measures for out-come,
output, efficiency, and quality. Almost all of the Division’s service units have their own set
of performance measures, and each of the measures directly corresponds to one of the
Division’s three goals. However, Customer Care Services does not have any performance meas-ures.
The Division should develop performance measures that help ensure Customer Care
Services meets division goals, such as the time it takes to respond to customer requests for serv-ice
and customer satisfaction with the help desk.
State of Arizona
Source: Auditor General staff compilation of unaudited information obtained from the Arizona Financial Information System (AFIS) for the years
ended June 30, 2003 and 2004; the Department’s fiscal years 2005-2009 strategic plan; and other information provided by the
Department, including financial estimates for the year ended June 30, 2005.
Services:
The Telecommunications Program Office (TPO) was created by the Legislature in 2005 to enter
into a contract with a contractor to provide for the telecommunications needs for each state office,
department, or agency. The contractor will manage telecommunications services for all executive
branch state agencies, including obtaining local and long-distance telephone calling service and
building a state-wide telecommunications network.
Funding:
Although the Department of Administration (Department)
organized the TPO in fiscal year 2005 and funded it with part
of the Information Services Division appropriation, the TPO
did not receive its initial appropriation of nearly $2.2 million
until fiscal year 2006. This includes $350,000 in a one-time
appropriation for professional and outside services, and a
$9,000 one-time appropriation for equipment.
Facilities:
The TPO uses approximately 3,000 square feet of the
Department of Administration facilities at 100 N. 15th Avenue
in Phoenix, Arizona. In addition, the telecommunications con-tractor
uses approximately 12,000 square feet at two depart-ment
buildings in Phoenix, and a third in Tucson. To reim-burse
the Department for the approximately $200,000 in
costs associated with the use of these facilities, the
Department plans to add a surcharge to agency telecom-munications
bills in fiscal year 2006.
Equipment:
The TPO owns common office equipment, but is also charged with administering a contract that
develops a unified state voice and data network for executive branch agencies.
PROGRAM FACT SHEET
Department of Administration
Telecommunications Program Office
Office of the Auditor General
Program staffing:
11 FTE (fiscal year 2006)1
Communications
Analyst—1
Financial
Analyst—1
Administrative—2
Contract
Managers—3
Project or
Program Managers—4
1 Eleven FTEs who assist with network security, switchboard, and
helpdesk are housed in the Information Services Division.
Mission:
The TPO has adopted the Department’s mission:
To provide effective and efficient support services to enable government agencies, state employ-ees,
and the public to achieve their goals.
Goals:
The TPO has adopted the Department’s three goals:
1. To deliver customer service second to none.
2. To attract and retain a high-performance team of employees.
3. To aggressively pursue innovative solutions and/or opportunities.
Adequacy of performance measures:
The TPO was formally created in statute as of June 30, 2005, and at the time of this audit had
not developed performance measures to meet its goals. According to a department official, the
TPO plans to create these performance measures by the end of October 2005 and is currently
in the process of developing customer service questions evaluating agency satisfaction with var-ious
aspects of state-wide telecommunications services.
Therefore, the TPO should ensure it develops appropriate measures such as those evaluating
agency satisfaction with the contractor’s telecommunications service and the contractor-man-aged
state-wide privatized network, and the effective use of a state-wide investment pool to pur-chase
telecommunications equipment.
State of Arizona
Source: Auditor General staff compilation of unaudited information obtained from the State of Arizona, FY 2006 Appropriations Report; Arizona
Revised Statutes; contracting documents; and other information provided by the Department.
The Office of the Auditor General has conducted a performance audit of two areas
within the Arizona Department of Administration—the Information Services Division
and the Telecommunications Program Office—pursuant to a November 20, 2002,
resolution of the Joint Legislative Audit Committee. This audit was conducted as part
of the sunset review process prescribed in Arizona Revised Statutes (A.R.S.) §41-
2951 et seq and is the second in a series of four reports on the Department of
Administration (Department). The first audit reviewed the Department’s Financial
Services Division (Auditor General Report No. 05-02), and the third audit will review
the Department’s Human Resources Division, including the State’s self-funded
health benefits program. The final report will be an analysis of the 12 statutory sunset
factors.
The Information Services Division (Division) provides a variety of information
technology and telecommunications services to the Department and other state
agencies, including maintaining and operating the department mainframe, providing
information security services to the Department and other state agencies, supporting
the Department’s computer network, and operating the State’s main telephone
switchboard. The Telecommunications Program Office (TPO) provides oversight for
a 5-year, approximately $40-million-per-year telecommunications outsourcing
contract required under Laws 2003, Chapter 263, Section 101. Under a contract
signed in January 2005, the State will consolidate management of all executive
branch telecommunications services under a single contractor. Further, the
contractor is required to create a single state-wide voice and data network used by
executive branch agencies called AZNET.
Several actions needed to improve information security
(see pages 11 through 21)
The Department should take a variety of actions to further ensure the security of the
State’s information systems and the data stored on them. The Department maintains
and secures some of the State’s most sensitive information technology (IT) resources
and data, including driver’s license and vehicle registration information and state
employees’ payroll information. While the Department performs some security
functions well, such as properly securing its desktop computers, it does not perform
Office of the Auditor General
SUMMARY
page i
many functions that national guidelines dictate. Specifically, the
Department does not perform regular monitoring and testing of its
internal network in order to identify and resolve potential system
vulnerabilities. This lack of monitoring and testing increases the risk of
network intrusion, which could allow a hacker to gain access to
sensitive systems and data. Additionally, the Department has not
performed risk assessments to identify and evaluate the risks to the
security of its information resources, developed comprehensive
security policies and procedures, ensured corrective actions are
implemented to address identified security weaknesses, and
provided annual security awareness training to department
employees.
To ensure that the Department has a coordinated security program
that addresses the deficiencies described above, it should establish a
centralized and comprehensive security program. Specifically, the
Department should assign one of its positions, such as the state-wide
security manager, the responsibility for administering a
comprehensive security program. The Department should determine if it needs
additional resources, including staff to enhance security. If additional staff and
resources are needed, the Department should assess whether it could reassign
existing staff and resources or take other steps, as appropriate, to seek additional
staff and resources.
Additionally, the Department should request statutory authority to enforce security
requirements that state agencies must follow to use AZNET. Currently, no agency has
statutory authority to enforce security standards for information systems shared by
state agencies. GITA has statutory authority to issue state-wide security standards,
but not operational authority to enforce its standards. Further, GITA’s functions do not
include the daily oversight of AZNET that would be necessary to enforce its
standards.
Finally, the Department needs to restrict public access to its information system
resources. Specifically, the Division does not centrally control Web site content, and
as a result, some inappropriate and sensitive details appear on its Web site. Further,
some department IT resources are configured in such a way as to potentially be
identified and manipulated by unauthorized external users.
State of Arizona
page ii
What Are the Department’s
Networks?
Internal Network—The Department maintains
a network of computers linking its divisions to
serve its internal needs.
State Network—A network linking state
agencies, allowing them access to data and
computer applications housed in the Division.
This network will be expanded to form
Arizona Network (AZNET), a consolidated,
privatized telecommunications network that
will provide both voice and data capabilities.
The AZNET is scheduled to be completed in
May 2006.
Improved oversight of telecommunications consolidation and
privatized network needed (see pages 23 through 30)
The Department should improve its oversight of activities related to consolidating
telecommunications support services and developing a single, privatized
telecommunications network. To consolidate these services, the Department and its
contractor will perform several activities during a transition period that will last until
March 2006, including an inventory of agency telecommunications equipment. An
accurate inventory of this equipment is needed to determine an agency’s
telecommunications equipment needs and costs under the contract, and to also
identify costs for equipment upgrades. For example, the inventory will determine
which of seven categories each of the State’s approximately 40,000 phones falls into.
Service costs for these phones can vary as much as $40 per month, per phone.
The Department plans to rely on state agencies’ staff and the contractor to develop
the inventory and thus determine additional costs under the contract for equipment
upgrades. To ensure an accurate inventory is conducted, the Department should
either reassign personnel to work on the inventory or contract for a technology expert
to oversee this process. The Department should review its current staffing
assignments to determine if it can reassign personnel within the Department; if not,
it should seek to reallocate funding to hire a contractor.
Additionally, the Department should work with its Information Services Division and
the contractor to develop an adequate security plan for the privatized
telecommunications network. The contract requires that the contractor prepare a
network security plan, but the contractor’s planning efforts thus far do not address all
needed security features. Instead, the contractor indicated that a more complete
security plan that will address all contractual requirements, such as compliance with
state security standards, will be developed by late 2005. The Department should
ensure that the contractor develops this plan as required.
Other pertinent information (see pages 31 through 34)
During this audit and in response to a legislative inquiry, auditors collected other
pertinent information related to the billing process and costs under the
telecommunications contract. Specifically:
􀁺􇨠 Billing—The contractor for the privatized telecommunications network will adopt
a single billing system used by all agencies to pay for carrier services. In the
past, agencies contracting these services from the Department had as much as
2 months to pay their bills. Under the contract, agencies will have 20 days to pay
Office of the Auditor General
page iii
their bills. The bills will reflect charges for each telephone that an agency
maintains, service calls, adding or replacing equipment, local and long-distance
service, and the Department’s costs to oversee the contractor and operate a
help desk.
􀁺􇨠 Contract costs—The contractor has agreed to provide telecommunications
services for approximately $40 million per year when agencies are fully
transitioned to contractor-provided services. However, to assist state agencies
with the transition to privatized telecommunications services, individual agency
costs for telecommunications services in fiscal years 2006 and 2007 will be held
at or near their fiscal year 2004 estimated amounts as determined by a 2004
department study of state agency telecommunications spending. Because of
differences in the rates that agencies have been paying for these services, the
TPO indicates that if the contractor’s prices were charged to each agency
immediately, some agencies would significantly exceed their
telecommunications budgets, while others would be well under their budgets.
As a result, for fiscal years 2006 and 2007, the contractor will adjust agency bills
to make them consistent with their estimated 2004 expenditures.
After the contract was awarded, the Department updated its 2004 study and as
of August 2005, estimated that agencies spent only approximately $35 million
for telecommunications services in fiscal year 2005. In addition, the Department
plans to charge agencies approximately $3 million annually in administrative
costs to oversee the contractor, operate a help desk, and pay for other costs,
such as rent for office space. As a result, the Department estimates that there
will be a more than $8 million deficit in fiscal years 2006 and 2007 between
agency expenditures and contract and administrative costs. The Department is
exploring several options to address this deficit, including deferring $3.1 million
in contractor charges for fiscal year 2006 until later fiscal years, using carrier cost
savings, and proposing that agencies approach the Legislature for a
supplemental budget request.
Beginning in fiscal year 2008, the contractor’s normal prices will go into effect.
All agencies will be affected by this change in pricing, and some agencies may
need to adjust their budgets to reflect the changes in telecommunications costs.
State of Arizona
page iv
Office of the Auditor General
TABLE OF CONTENTS
continued
page v
1
11
11
12
16
19
20
23
23
26
27
30
31
31
32
Introduction & Background
Finding 1: Several actions needed to improve
information security
Security of information systems important
Department performs some security functions well, but lacks
coordinated security program
Department should implement coordinated information security
program
Department needs to better limit access to information system
resources
Recommendations
Finding 2: Improved oversight of telecommunications
consolidation and privatized network needed
Agencies will phase in consolidated telecommunications
management
Department should oversee inventory process
Department should improve oversight of network security
Recommendations
Other Pertinent Information:
Contractor billing system will bring changes
Telecommunications contract costs
State of Arizona
TABLE OF CONTENTS
concluded
page vi
Agency Response
Tables:
1 Technology and Telecommunications Fund
Schedule of Revenues and Expenditures, in Thousands
Years Ended June 30, 2003, 2004, and 2005
(Unaudited)
2 Security Functions the Department Performs Well
3 Network Testing and Recommended Frequency
Figure:
1 Planned Agency Network (AZNET)
7
13
14
4
The Office of the Auditor General has conducted a performance audit of two areas
within the Arizona Department of Administration—the Information Services Division
and the Telecommunications Program Office—pursuant to a November 20, 2002,
resolution of the Joint Legislative Audit Committee. This audit was conducted as part
of the sunset review process prescribed in Arizona Revised Statutes (A.R.S.) §41-
2951 et seq and is the second in a series of four reports on the Department of
Administration (Department). The first audit reviewed the Department’s Financial
Services Division (Auditor General Report No. 05-02), and the third audit will review
the Department’s Human Resources Division, including the State’s self-funded
health insurance program. The final report will be an analysis of the 12 statutory
sunset factors.
Information Services Division history, programs, and
staffing
The Department of Administration’s Information Services Division (Division) provides
a variety of information technology services to the Department and other state
agencies. In 1972, the Legislature created the Department of Administration,
including a Data Processing Division, to provide for the collection, storage, and
processing of data and to develop and maintain a coordinated state-wide plan for
data processing and data communication systems. Laws 1996, Chapter 342,
removed the state-wide planning function from the Department by transferring that
responsibility to the Government Information Technology Agency (GITA). The Division
currently provides information technology services and support both within the
Department and to other state agencies. Services and support include activities such
as mainframe and other types of data processing, creating and maintaining Web
sites, and maintaining and providing technical support for both the Department’s
internal network and the state-wide network.
As of July 2005, the Division had 165.65 positions with 26.9 vacancies. Six filled
positions report directly to the assistant director and provide administrative support,
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
business continuity and disaster planning, and technology planning for the Division.
In addition, the Division has five sections carrying out its numerous responsibilities:
􀁺􇩉 Information Processing Center (60 filled positions)—Also known as the data
center, this section operates and maintains the Department’s mainframe that
runs high-volume applications for the Department and approximately 50 other
state agencies, such as the Arizona Health Care Cost Containment System, the
Arizona Department of Transportation (ADOT), and the Department of Revenue.
For example, the mainframe houses ADOT’s title and registration database,
which includes information such as names, addresses, social security numbers,
driving records, and vehicle records. Over the course of a week, the mainframe
processes more than 8 million transactions or queries on ADOT’s data. The data
center also maintains servers that provide computer processing for applications
that process smaller numbers of transactions. For example, the Department’s
Human Resources Information Solution is housed on several servers in the Data
Center, and the Naturopathic Physicians Board of Medical Examiners leases
server space from the Department. The Data Center operates 24 hours per day,
7 days per week and charges fees to agencies for the services it provides.
􀁺􇩓 Security (10 filled positions)—This section conducts a variety of security services
for the Department and other state agencies, such as providing some state
employees with mainframe access, and security training for department
employees. In addition to its services for the Department, according to the
section’s manager, if an agency requests it, the section will use software to scan
the agency’s networks to identify security vulnerabilities, and monitor intrusions
and illegal attempts to access state agency data networks.
􀁺􇩉 Internal Technology (32.9 filled positions)—This section provides support for the
Department’s desktop computers and operates the Department’s internal
agency network. This section also tests and ensures that security patches are
installed on agency desktop computers and supports the Department’s Arizona
Financial Information System and the Human Resources Information Solution.
􀁺􇩆 Finance and Planning (8.5 filled positions)—This section provides budget,
planning, and financial analysis to the Division. The section is responsible for
determining the rates that agencies are charged for services and refunding any
overcharges. This section also houses the Department’s 9-1-1
telecommunications services. The Department is required to administer and
disburse the 9-1-1 excise tax that is deposited into the emergency
telecommunication services’ revolving fund, and it reviews and approves
political subdivisions’ payment requests for operating emergency
telecommunication service systems.
State of Arizona
page 2
􀁺􇩃 Customer Care Services (20.35 filled positions)—This section provides support
to the Division’s internal and external customers and houses the state
switchboard, which answers calls to the State’s central number and routes them
to the appropriate person or agency.
Telecommunications services
The Department also provides oversight for the State’s privatized
telecommunications services contractor and AZNET, the State’s privatized
telecommunications network. Under Laws 2003, Chapter 263, the Legislature
required GITA, in consultation with the Department, to privatize telecommunications
services for all executive branch agencies. In January 2005, the Department awarded
a 5-year, approximately $40 million annual contract, with options for up to two 2-year
extensions to a single contractor to carry out this legislative mandate. The contract
provides for the following:
􀁺􇩃 Consolidates management of telecommunications services under a single
contractor—The contractor will provide telecommunications services for all
executive branch agencies. Prior to the contract, the Department’s Arizona
Telecommunications System (ATS) provided approximately 30 percent of voice
and data telecommunications services to state agencies. Agencies separately
obtained the remaining 70 percent of telecommunication services from private
providers who supplied telephone maintenance, long distance, Internet, and
other services. Each state agency that worked with a private contractor
managed and maintained its own telecommunications network and its own
equipment inventory, including when to upgrade or purchase new equipment.
Under the new contract, a single contractor will provide or coordinate these
services for all executive branch agencies and eventually eliminate the separate
contracts that agencies have with different providers.
􀁺􇨠 Creates a single state-wide voice and data network (AZNET)—The same
contractor is required to develop a unified state voice and data network for
executive branch agencies. Many agencies used private contractors and their
own staff to develop their own networks linking together agency offices
throughout the State. The new contract will consolidate agencies’ individual
telecommunications networks into a single, privatized network called AZNET
(see Figure 1, page 4). For example, Yuma has more than ten individual circuits,
or transmission lines, from different agencies running to Phoenix. Those ten
individual circuits could be linked together in Yuma, and one connection to
Phoenix could handle all voice and data traffic from Yuma. The contractor
estimates that AZNET will reduce telecommunications costs by coordinating
these networks. Further, it will enable state agencies to take advantage of new
The Legislature has
required privatization of
telecommunications
services for all executive
branch agencies.
Office of the Auditor General
page 3
State of Arizona
page 4
Figure 1: Planned Agency Network (AZNET)
Source: Auditor General staff analysis of the contractor's draft Network Convergence Architecture plan.
Tucson
Phoenix
Safford
Yuma
Parker
Globe
Kingman
Prescott
Flagstaff
Casa Grande
Benson
Nogales
Holbrook
Rural Sites—Rural agency offices
AZNET Consolidation Sites—11 sites around the State connecting rural agency
offices to the state network
AZNET—Main network sites located in Phoenix and Tucson
Legend
Office of the Auditor General
page 5
technologies that will allow them to contact each other directly over the network,
reducing local and long-distance service charges.
As a result of this change to a single provider for all telecommunications services, the
ATS was eliminated and the Telecommunications Program Office (TPO) was created.
Specifically, by consolidating telecommunications services under a single contractor
and developing a single, privatized telecommunications network, the ATS was no
longer needed to provide telecommunications services. This reduced the
Department’s budget by approximately $13 million and eliminated 55.6 FTEs who
previously worked for the ATS. Most of the FTE reduction was handled by employees
transferring to the contractor or other state employment, or through attrition.
In order to oversee the contract, for fiscal year 2006, the
Department received legislative approval to establish
the TPO with 22 positions and a budget of nearly $2.2
million. The TPO is not part of the Information Services
Division, but instead reports directly to the
Department’s director. TPO responsibilities include
ensuring that the contractor meets the terms of the
contract, ensuring contractor invoices are accurate,
reviewing documents provided by the contractor,
working with the Telecommunications Executive
Governance Committee (TEGC) and other committees
formed to facilitate the transition to the contractor, and
managing the transition of agency
telecommunications services to the new contractor.
The Department has housed 11 of the TPO’s 22
positions in the Information Services Division to assist
agencies with the privatized network. Specifically, the
Department has 2 positions to staff a help desk that
receives initial support calls from agencies,
documents the calls, and passes the information to the
contractor for resolution; 7 positions to operate the
state switchboard to route calls from state agency
employees and the public to other state agency
employees, as well as facilitate conference calls; and
2 security investigator positions to investigate
telecommunications fraud, inappropriate Internet use,
and other telecommunications crimes related to the
privatized network.
What Is the TEGC?
The Telecommunications Executive Governance
Committee is made up of the directors or deputy
directors of 13 state agencies:
Departments of:
Administration
Agriculture
Commerce
Corrections
Economic Security
Environmental Quality
Game and Fish
Public Safety
Revenue
Transportation
Water Resources
Arizona Health Care Cost Containment System
Arizona State Retirement System
The TEGC manages and governs the TPO, oversees
the contractor’s performance, and reviews and
approves plans for new telecommunications projects.
Operating budgets
Through fiscal year 2005, the Division’s operating budget consisted primarily of
monies appropriated from the Technology and Telecommunications Fund. The
revenues consisted of charges assessed to state agencies for the various services
the Division provides, which were deposited into the fund; legislative appropriations;
grant monies; and monies from the sale of telecommunications and automation
assets. The Division’s revenues are intended to offset its operational costs, and the
Division raises or lowers its fees to match expenditures. If revenues exceed
expenditures, the Division refunds the monies to agencies. Table 1 (see page 7)
illustrates the Division’s actual revenues and expenditures for fiscal years 2003
through 2005. The Division received approximately $30.3 million in revenues in fiscal
year 2004, and an estimated $27.4 million in revenues in fiscal year 2005. According
to the Division, revenues fluctuate yearly because agencies’ use of division services
varies from year to year.
Effective July 1, 2005, the Legislature eliminated the Technology and
Telecommunications Fund and created the Automation Fund to support the
Information Services Division and the Telecommunications Fund to support the
Telecommunications Program Office. For fiscal year 2006, the Automation Fund was
appropriated $23.7 million, and the Telecommunications Fund was appropriated
nearly $2.2 million.
Audit scope and methodology
This audit focused on the security of the various information systems for which the
Department is responsible, including its internal network, state network, data center,
and the single, privatized state network that is under development; and the
Department’s oversight of the transition to a single, private provider for
telecommunications services and the privatized network. The report presents
findings and recommendations in the following areas:
􀁺􇩔 The Department should take several steps to improve security on various
information systems, including its internal network and the state network, which
contain critical applications and data, by centralizing responsibility for security.
􀁺􇩔 The TPO needs to adequately oversee the process for conducting an inventory
of state agency telecommunications equipment, and ensure that the contractor
develops an appropriate security plan for the privatized telecommunications
network.
State of Arizona
page 6
The report also presents other pertinent information regarding how the contractor will
bill agencies for telecommunication services and the potential impact of contractor
charges for these services on state agencies’ telecommunications budgets
beginning in fiscal year 2008.
Auditors used various methods to study the issues addressed in this report, including
interviewing department, division, TPO, and other state agency officials and staff, and
reviewing the Division’s and the TPO’s financial information and statutes. Auditors
also used the following specific methods:
􀁺􇩔 To evaluate the effectiveness and sufficiency of the Division’s information system
security, auditors reviewed the Division’s policies and procedures, including
those related to security awareness training and risk analysis, and also toured
the data center. To test department security procedures, auditors reviewed
Office of the Auditor General
page 7
Table 1: Technology and Telecommunications Fund1
Schedule of Revenues and Expenditures, in Thousands
Years Ended June 30, 2003, 2004, and 2005
(Unaudited)
2003 2004 2005
(Actual) (Actual) (Estimated)
Revenues:
Charges for services $34,917 $30,265 $27,385
Expenditures and transfers:
Personal services and employee-related 9,598 10,050 9,968
Professional and outside services 1,233 1,698 1,513
Travel 74 65 52
Other operating 7,590 7,404 5,152
Equipment 11,186 10,642 8,492
Allocated costs 267 276 268
Total expenditures 29,948 30,135 25,445
Net operating transfers out 24 22 14
Total expenditures and operating transfers 29,972 30,157 25,459
Excess of revenues over expenditures and operating transfers $ 4,945 $ 108 $ 1,926
1 Represents the financial activity of the Technology and Telecommunications Fund. Beginning in fiscal year 2006, the fund was
divided into two new funds, the Automation Operations Fund and the Telecommunications Fund, in accordance with Laws 2005, First
Regular Session, Chapter 301. The Automation Operations Fund will be used to pay the costs of any automation applications the
Department implements, and the Telecommunications Fund will be used to pay for costs incurred in operating the
Telecommunications Program Office. The Department reports that approximately $11.1, $10.2, and $7.8 million of the expenditures
presented above for 2003, 2004, and 2005, respectively, were for activities that the Telecommunications Program Office will be
performing.
Source: Auditor General staff analysis of financial information provided by the Department of Administration from its Arizona Financial
Information System for the years ended June 30, 2003 and 2004, and department-prepared estimates for the year ended
June 30, 2005. (Actual information was not available at the time of this report.)
division security patch management logs and inspected a sample of 12
department computers for the presence of security updates, virus protection,
and nonbusiness-related software. In addition, auditors inspected 20 desktops,
laptops, and servers at State Surplus Property to ensure that the hard drives had
been properly erased. To measure the effectiveness of the Division’s security
practices, auditors compared the Department’s security practices to two
resources on IT controls and security and to GITA’s Statewide Standards for IT
security.1,2,3 To determine IT resource configuration practices in other state
agencies, auditors interviewed security managers from the Departments of
Economic Security and Public Safety. To identify past evaluations of the
Division’s IT security practices and determine the Division’s response to these
evaluations, auditors reviewed scans of the Department’s network from 2004
and a consultant’s IT security assessment of the Division from 2001. Finally, to
review access controls, auditors analyzed reports and data from the mainframe
security system, the Human Resources Information Solution system, and the
Department’s local area network.
􀁺􇨠 To evaluate the Department’s oversight of the transition to a single, private
provider for telecommunications services, auditors identified the contract’s
intent and requirements by reviewing the state agency telecommunications
privatization services’ contract statement of work, the offerer’s proposal, other
contract documents, and GITA’s 2003 Telecommunications Roadmap. To
identify and evaluate the Department’s process for carrying out this intent,
auditors reviewed draft documents related to the transition process, such as the
draft security architecture plan; and convergence and transition plans from the
Department’s telecommunications contractor; and inventory records sheets and
draft proposals for using state monies for agency projects; attended a meeting
of the Telecommunications Executive Governance Committee and other
telecommunications-related committees; and compared the contractor’s draft
security plan to standards and best practices from the National Institute for
Standards and Technology and to guidelines published in the IT Governance
Institute’s Control Objectives for Information and Related Technology.4,5
State of Arizona
page 8
1 U.S. Department of Commerce. Technology Administration. An Introduction to Computer Security: The NIST handbook.
NIST Special Publication 800-12. Gaithersburg, MD: National Institute of Standards and Technology, Oct. 1995.
2 U.S. Government Accountability Office. Federal Information System Controls Audit Manual (GAO/AIMD-12.19.6).
Washington, D.C.: U.S. Government Accountability Office, Jan. 1999.
3 U.S. Department of Commerce. Technology Administration. Guideline on Network Security Testing. NIST Special
Publication 800-42. Gaithersburg, MD: National Institute of Standards and Technology, Oct. 2003.
4 COBIT Steering Committee. COBIT: Governance, Control, and Audit for Information and Related Technology. 3rd ed.
Rolling Meadows, IL: IT Governance Institute, 2000.
5 U.S. Department of Commerce Technology Administration. Guide for Developing Security Plans for Information
Technology Systems. NIST Special Publication 800-18. Gaithersburg, MD: National Institute of Standards and
Technology, 1998.
􀁺􇨠 To gather information related to the contractor’s billing practices and service
charges, auditors reviewed the Department’s planning documents; the
Department’s 2004 Total Cost of Ownership study and department draft
documents updating the study for 2005; relevant portions of the contractor’s
proposals, such as its pricing workbook; and documents related to the transition
to the new, single provider for telecommunications services, including a
contractor’s telecommunications bill for April 2005.
􀁺􇩔 To gather information for the Introduction and Background section, auditors
reviewed unaudited information from the Department’s and GITA’s November
2002 report to the Joint Legislative Budget Committee on the Arizona
Telecommunications Service, the Joint Legislative Budget Committee fiscal year
2006 appropriations report, the statement of work from the telecommunications
contract, the July 2005 Arizona Department of Administration personnel listing,
and other information provided by the Division.
The audit was conducted in accordance with government auditing standards.
The Auditor General and staff express appreciation to the director of the Department
of Administration and the staff of the Information Services Division and the
Telecommunications Program Office for their cooperation and assistance throughout
the audit.
Office of the Auditor General
page 9
State of Arizona
page 10
Several actions needed to improve information
security
The Department should take a variety of actions to further ensure the security of the
State’s information systems and the data stored on them. The Department maintains
and secures some of the State’s most sensitive IT resources and data, including
driver’s license, vehicle registration, and medical information. While the Department
performs some security functions well, it does not perform other important security
functions, which increases these systems’ vulnerability to unauthorized entry and
potential manipulation. To improve security, the Department should emphasize
security planning by designating someone to be responsible for the overall security
effort of its internal network and the data center, and by including more security
requirements in the intergovernmental service agreements with state agencies that
use the data center. In addition, the Department should request authority from the
Legislature to enforce security requirements for the state-wide network, or AZNET.
Finally, the Department needs to improve its own network security by taking steps to
keep sensitive information off the Information Services Division Web site and
changing how it sets up IT devices.
Security of information systems important
As computer technology has advanced, agencies have become increasingly
dependent on computerized information systems to carry out their operations and to
process, maintain, and report essential information. Adequate security of information
and the systems that process it is a fundamental management responsibility.
Information security includes issues such as restricting and allowing access to
systems and applications, setting up hardware and software to ensure appropriate
access, securing buildings and rooms that house critical hardware and software, and
conducting background checks of the personnel who work directly with critical
information systems. Nationally, government officials are increasingly concerned
about attacks from individuals and groups with malicious intent, which appear to be
Office of the Auditor General
FINDING 1
page 11
increasing. For example, the number of reported incidents handled by Carnegie-
Mellon University’s CERT Coordination Center increased from 21,756 in 2000 to
137,529 in 2003.1
The Department is responsible for the security of information resources and the data
that resides on them. The Department maintains an internal network and also
operates and maintains the data center, which runs computer applications and
serves as a data repository for its own systems and those of many state agencies.
For example, the data center handles both the Department’s own Human Resources
Information Solution, which contains data associated with payroll, personnel,
employee benefits, and other associated functions for state employees, and the
Arizona Department of Transportation’s Motor Vehicle Division data that includes
names, addresses, social security numbers, driving records, and vehicle records.
Department performs some security functions well, but
lacks coordinated security program
While the Department performs some security functions well, it lacks a
comprehensive and coordinated security program with several essential features.
The Department has adequately performed some security functions, such as
ensuring that its desktop computers have up-to-date virus protection and security
updates. However, the Department has not performed several important security
functions, such as conducting network scans and tests, and it has failed to develop
comprehensive policies and provide ongoing security training.
Department performs some security functions well—As shown in Table 2
(see page 13), the Department conducts some important activities that help to
ensure IT resources’ security. For example, auditors examined 12 desktop
computers, along with the Department’s security update logs and alerts, and found
that these computers had current security updates and virus protection. In addition,
auditors found that data on all 20 department computers and servers that were at the
State’s Surplus Property in May 2005 were erased or destroyed according to Surplus
Property requirements. The Department also adequately restricts personnel access
to the data center and requires sufficient password protection for both its desktop
computers and the mainframe.
Other security functions not performed well—While the Department takes
some steps to provide a basic level of protection, it does not perform many security
functions that national standards dictate. The Department needs to take additional
steps to more fully guard against the kinds of intrusions attempted by hackers or
The Department
appropriately disposes
of surplus hardware
equipment.
1 Originally called the Computer Emergency Response Team, the center was established in 1988 by the Defense
Advanced Research Projects Agency. It is charged with (1) establishing a capability to quickly and effectively coordinate
communication among experts in order to limit the damage associated with, and respond to, incidents and (2) building
awareness of security issues across the Internet community.
State of Arizona
page 12
Network—A group of two
or more computers linked
together by cables,
telecommunications lines,
or radio waves.
others seeking to gain inappropriate access to sensitive data and systems.
Specifically:
􀁺􇩎 Network scanning inconsistent—The Department has performed some network
scanning in the past, but it does not perform regular monitoring and testing of
its internal network in order to identify and address potential vulnerabilities. By
scanning the network, the Department could identify potential vulnerabilities,
such as any unauthorized computers connected to the network and any
unauthorized services on the network. As illustrated in Table 3 (see page 14), the
National Institute of Standards and Technology (NIST) recommends several
network scans and tests that should be conducted on a regular basis to help
identify potential weaknesses and vulnerabilities that expose networks to
increased risk of unauthorized access.1 For example, NIST recommends
that organizations perform a network scan continuously to quarterly for
systems that provide security such as firewalls, and semi-annually for low-risk
systems such as those that a firewall protects. However, according to
the Department, the last complete scan of the Department’s network was
done in 2001, while in 2004, the Department contracted for a scan of only
the Human Resources Information Solution application. This lack of
1 The National Institute of Standards and Technology issues information security standards for all federal agency
operations except national security systems.
Office of the Auditor General
page 13
Table 2: Security Functions the Department Performs Well
Function Audit Results
Desktop computer security • Security and virus protection software was current on all 12
department computers that auditors tested.
Data Center physical
security
• Access was controlled by electronic keycards.
• Electronic keycards were issued and collected from terminated
employees promptly.
User access (mainframe
system)
• Password length was sufficient.
• Employees changed passwords every 30 days.
• All user IDs were unique.
User access (desktop
computers)
• Employees changed passwords at appropriate intervals.
Disposed-of computers and
servers
• Data on all 20 computers and servers present at Surplus
Property in May 2005 was erased according to policy.
Source: Auditor General staff analysis of mainframe system and network user account parameters and
Auditor General staff inspection of data center, desktop computers, and disposed-of computers
and servers.
Firewall—A system
designed to prevent
unauthorized access to or
from a private network. It is
considered the first line of
defense in protecting
private information.
monitoring and testing increases the risk of network intrusion, which could allow
a hacker to gain access to sensitive systems and data.
􀁺􇨠 Independent security assessments not obtained—The Department has not
obtained an independent security assessment since 2001 and does not have a
policy defining the frequency and under what circumstances such assessments
should be obtained. According to NIST, an organization should obtain an
independent review of its security controls at least once every 3 years and more
frequently for critical systems. The Department last obtained such an
assessment in 2001, when it paid more than $310,000 to a private contractor to
conduct a security assessment that looked at areas such as the Department’s
security policies and procedures, mainframe security, and network
vulnerabilities. However, the Department has not since contracted for an
independent security assessment of its operations, even though that
The Department has not
performed a complete
network scan since
2001.
State of Arizona
page 14
Table 3: Network Testing and Recommended Frequency
Test Type and Benefits
Recommended
Frequency1
Network scanning
• Lists the network structure, computers, and associated software
• Identifies unauthorized computers connected to a network
• Identifies public connections to computers
• Identifies unauthorized services
Continuously
to semiannually
Vulnerability scanning
• Lists the network structure, computers, and associated software
• Identifies a target set of computers to focus vulnerability
analysis
• Identifies potential vulnerabilities on the target set
• Validates that operating systems and major applications have
up-to-date security and software
Bimonthly to
semiannually
Penetration testing
• Determines how vulnerable an organization's network is to
penetration and the level of damage that can be incurred
• Tests IT staff's response to perceived security incidents and its
knowledge and implementation of the organization's security
policy and system’s security requirements
Annually
1 Frequency depends on the system’s sensitivity.
Source: U.S. Department of Commerce. Technology Administration. Guideline on Network Security
Testing. NIST Special Publication 800-42. Gaithersburg, MD: National Institute of Standards
and Technology, Oct. 2003.
assessment identified many concerns with the Department’s internal and state-wide
networks. For example, in the 2001 assessment, reviewers found that the
Department was running an unsecure version of an operating system and that
many computers had inappropriate open public connections.
􀁺􇩒 Risk assessments not performed—While the Department has a policy detailing
how to conduct a risk assessment, it has not performed a comprehensive risk
assessment. A risk assessment identifies and evaluates a particular potential
vulnerability’s risk and its potential impact on information systems to determine
the extent of a potential threat and appropriate actions to mitigate the threat.
Risk assessments should be performed and documented on a regular basis, at
least every 3 years or whenever systems, facilities, or other conditions change.
Risk assessments consider data sensitivity, the need for integrity, and the range
of risks that might affect an entity’s systems and data. These assessments
would help the Department determine how best to complete other oversight
functions, such as network scanning. According to a department official, it has
not conducted risk assessments because it was not considered a high priority.
􀁺􇩃 Corrective actions not tracked, monitored, and implemented effectively—When
significant weaknesses are identified, the related risks should be reassessed,
appropriate corrective actions taken, and follow-up monitoring performed to
make certain that corrective actions are effective. However, the Department has
not created a formal follow-up process to ensure that identified weaknesses are
tracked and effective corrective actions taken. Failure to take effective corrective
actions results in the Department’s continuing to leave both its own and state
information resources vulnerable. For example, the Department has not taken
actions to address many of the weaknesses identified in the 2001 security
assessment, such as sensitive information being made available on its Web site.
Security policies and training inadequate—The Department does not
ensure that staff have the tools to understand security requirements. Specifically:
􀁺􇩓 Security policies and procedures not adequate—The Department lacks
comprehensive security policies and procedures, and the few it does have do
not provide sufficient detail or have not been updated since 2000. For example,
the Department does not have a policy regarding the use of wireless
connections to prevent unauthorized access to internal networks even though
wireless communications are being used within the Department. Failure to
define such standards increases the risk of providing a pathway for
unauthorized users to access a network. According to GITA, state agencies are
responsible for creating any necessary policies and procedures in order to
establish a security program. Additionally, the Department’s 2001
comprehensive security assessment, for which the Department contracted,
found its security policies and procedures lacking. Therefore, the assessment
The Department has not
performed a
comprehensive risk
assessment.
Office of the Auditor General
page 15
1 U.S. Government Accountability Office. Federal Information System Controls Audit Manual (GAO/AIMD-12.19.6).
Washington, D.C.: GAO, Jan. 1999.
recommended that the Department create more detailed policies and
procedures, and that the department director sign all security policies and
procedures in order to ensure central management approval and buy-off.
􀁺􇩏 Ongoing security awareness training not conducted—The Department does not
provide its employees with ongoing security awareness training. Training that
informs department employees of necessary security policies, such as not
revealing one’s password, should be conducted at initial hire and on an ongoing
basis. Although GITA and department policy requires both initial and annual
training, department employees currently receive training only at the time of
initial hire. Failure to provide ongoing security awareness and training to
employees increases the risk that users could misuse data or resources, or that
unauthorized personnel could gain access to data or resources.
Department should implement coordinated information
security program
In order to ensure that a coordinated information security program is in place, the
Department should take two steps. First, the Department should establish a position
responsible for all security functions so that security is better emphasized within the
Department. Second, it should enhance its interagency service agreements with
agencies that use the data center to better define each party’s responsibilities for
information security. In addition, the Department should request the statutory
authority to enforce minimum standards for AZNET users.
Security functions should be centralized—To ensure that the Department
has a coordinated security program that includes the features described above and
that it meets its responsibility for securing its internal network and the data center, the
Department should establish a centralized and comprehensive security program.
Although the Department has a state-wide security manager, this position does not
have the responsibility to ensure compliance with accepted security standards or that
the Department performs the necessary activities to help ensure the security of the
networks, systems, and data for which it is responsible. Instead, this position
responds to and attempts to address individual security questions and problems as
they arise, such as stopping corrupted computers from sending out e-mails
contaminated with a virus. However, the U.S. Government Accountability Office noted
in its study of organizations with leading information security practices that these
organizations had established centralized security responsibilities.1 By doing so, the
organizations ensure that they had adequate security policies and that these policies
address security risks on an ongoing basis.
State of Arizona
page 16
The Department should
assign a person to
oversee a
comprehensive security
program.
Office of the Auditor General
page 17
Therefore, the Department should assign one of its positions, such as the state-wide
security manager, the responsibility for security of the Department’s internal
information resources and network, as well as the data center. This position should
be responsible for administering a comprehensive security program that would
address:
􀁺􇨠 Developing a policy governing network scanning, monitoring, and testing,
including how it should be done, the frequency, and follow-up procedures;
􀁺􇩏 Obtaining an independent security assessment at least every 3 years and
developing policies regarding under what circumstances it would obtain an
independent assessment more frequently;
􀁺􇩃 Conducting risk assessments on a regular basis, at least every 3 years and as
needed when systems, facilities, or other conditions change;
􀁺􇨠 Developing a system to follow up on identified risks and weaknesses to ensure
that they are addressed;
􀁺􇨠 Developing adequate security policies and procedures and ensuring that they
include sufficient detail; and
􀁺􇩐 Providing annual security awareness training as provided for in both GITA and
department policy.
The Department has begun to address some of these specific items. For example, it
plans to develop recommended policies and procedures for network scanning and
monitoring and obtaining independent security assessments, to begin performing
scans of its internal network by September 2005 and conducting risk assessments
by November 2005, and establishing ongoing training by September 2005. However,
the Department should ensure that it has assigned the responsibility for ensuring that
these activities are completed to one of its positions. The Department should also
determine if it needs additional staff, funding, and technical resources to perform
these additional security duties, and if so, assess whether it could reassign existing
staff and resources or take other steps, as appropriate, to seek additional staff and
resources.
Security responsibilities should be defined in interagency service
agreements—In order to adequately protect the information systems maintained
in the data center, the Department should enhance its interagency service
agreements with state agencies that use the data center. While the Department has
agreements with these agencies, these agreements lack specific details regarding
responsibilities for system and application security. For example, one agreement
stated that the Department would provide system security support and the agency
would provide security for applications, but it did not provide additional detail.
According to GITA policy, agencies may develop agreements to help ensure
sufficient and acceptable security protection for all participating agencies. Therefore,
the Department should develop agreements that define minimum security
standards, how the Department will monitor compliance with the policies and
procedures, and how standards will be enforced. The agreements should also
delineate the Department’s responsibility to provide access to the state data center
and the state agency’s responsibility to meet specific, minimum security
requirements. Further, the agreements should define the circumstances under which
a state agency may face actions and the actions the Department may take. For
example, the Department could restrict a state agency’s access to the data center
for failure to comply with those security requirements. This would allow the
Department to better ensure that vulnerabilities or corrupted computers in one
agency do not compromise the systems of other agencies that use the data center.
According to the Department, beginning in August 2005, more detailed security
requirements will be included in these agreements as the current agreements expire.
Statutory authority needed to ensure sufficient security over
AZNET—The Department should request statutory authority from the Legislature to
enforce the specific minimum security requirements state agencies must follow
related to AZNET. The Department’s enabling statutes charged it to “provide for an
efficient and coordinated utilization of automation equipment, techniques and
personnel to achieve optimum effectiveness … and productivity in the … security of
information.” However, when GITA was created in 1996, this wording was removed
from the Department’s statutes, and GITA was given statutory authority to issue state-wide
security standards. However, GITA was not given operational authority to
enforce its standards. This resulted in a lack of statutory authority to enforce security
standards for information systems shared by state agencies. Specifically, although
GITA has the responsibility for setting state-wide security standards and is
considering designating a staff member to serve as the State’s chief security officer,
its functions do not include the daily oversight of AZNET that would be necessary to
enforce its standards.
If one state agency does not sufficiently secure its resources, it potentially exposes
the other state agencies using a shared resource, such as AZNET, to an increased
risk of data loss or hacker intrusion. Therefore, the Department should ask the
Legislature to amend A.R.S. §41-712 to give the Department statutory authority to
enforce security requirements on state agencies using AZNET. This authority should
permit the Department to ensure that agencies using AZNET meet security
standards, as defined by GITA. The Department’s responsibilities would extend to
implementing GITA policies and standards and working with GITA to develop
operational minimum security standards with regard to AZNET. For example, GITA
requires that state agencies review, test, and audit firewall policies, but is not specific
about how frequently this should occur. The Department would need to work with
GITA to develop a policy for AZNET users to follow regarding the minimum frequency
of such reviews and how to deal with agencies that fail to effectively implement
State of Arizona
page 18
firewalls. In addition, the Department would need to ensure that any authority to
enforce security standards is included in its comprehensive security program.
Department needs to better limit access to its information
system resources
The Department has not implemented sufficient measures to restrict public access
to its information system resources. This could potentially allow unauthorized
personnel to access sensitive information. Specifically:
􀁺􇩓 Sensitive information on Web site—The Information Services Division does not
centrally control the content on its Web site, and as a result, sensitive information
is available on the Internet. The Division has been aware of this problem since
the 2001 comprehensive security assessment recommended that it remove
such material from its Web site. However, the Division has continued to maintain
sensitive information on its Web site. During the audit, the Division began to
review the content available over the Internet and to draft a policy that would
govern Web content. The Division should ensure that the policy requires central
review and approval of Web site content to ensure that sensitive information is
not available to the public. Additionally, the Division should ensure that sensitive
information is removed from its Web site, and instead maintain any sensitive
information in a more secure environment, such as the Department’s internal
network, which is not available to the public.
􀁺􇩐 Poor configuration of devices—GITA standards require that internetworking
devices such as routers and switches, and shared platforms such as servers,
be set up in a way that limits potential access by unauthorized external users.
However, department devices are configured in a manner that potentially allows
them to be identified and manipulated by unauthorized external users. GITA
standards define how these devices should be set up to guard against such
external risks, and the Department should configure its resources to comply with
those standards.
The Division has kept
information that could
compromise the security
of sensitive data and
systems on its Web site.
Office of the Auditor General
page 19
Recommendations:
1. The Department should designate a central authority, such as its state-wide
security manager, with the responsibility for developing a comprehensive
security program for the Department’s internal information resources and
network, as well as the data center. The Department should then ensure that the
program addresses:
a. Developing a policy governing network scanning, monitoring, and testing,
including how it should be done, the frequency, and follow-up procedures
to correct identified vulnerabilities;
b. Ensuring that it obtains an independent security assessment at least every
3 years and developing policies regarding the circumstances under which
it would obtain an independent assessment more frequently;
c. Conducting risk assessments at least every 3 years and as needed when
systems, facilities, or other conditions change;
d. Developing a system to follow up on identified risks and weaknesses to
ensure that they are addressed;
e. Developing adequate security policies and procedures and ensuring that
they include sufficient detail; and
f. Providing annual security awareness training as provided for in both GITA
and department policy.
2. The Department should determine if it needs additional staff, funding, and
technical resources to perform additional security duties, and if so, assess
whether it could reassign existing staff and resources or take other steps, as
appropriate, to seek additional staff and resources.
3. The Department should request that the Legislature amend A.R.S. §41-712 to
give the Department statutory authority to enforce security requirements for state
agencies using AZNET. If the Department receives such authority, it should
ensure that it becomes part of its comprehensive security program in
conjunction with the first recommendation.
State of Arizona
page 20
4. The Department should enhance its interagency service agreements with state
agencies that use the data center to define the Department’s and the agencies’
security responsibilities. The agreements should:
a. Delineate the Department’s responsibility to provide access to the state
data center and the state agency’s responsibility to meet specific, minimum
security requirements; and
b. Define the circumstances under which a state agency may face actions for
failure to comply with those security requirements, and the actions the
Department can take to better ensure that corrupted systems in one
agency do not compromise other agencies’ systems and data.
5. The Information Services Division should better ensure that it does not publish
sensitive information on its Web site by developing a policy requiring central
review and approval of Web site content. The Division should also review current
Web content to ensure that sensitive information has not remained on its Web
site, and instead maintain any sensitive information in a more secure
environment, such as the Department’s internal network, which is not available
to the public.
6. The Department should configure its information system resources, such as
routers, switches, and servers, to comply with GITA standards to provide greater
safety from external threats.
Office of the Auditor General
page 21
State of Arizona
page 22
Improved oversight of telecommunications
consolidation and privatized network needed
The Department should improve its oversight of two activities related to consolidating
telecommunications support services and developing a single, privatized
telecommunications network. To consolidate these services, the Department and its
contractor will perform several activities, including addressing existing
telecommunications contracts and conducting an inventory of agency
telecommunications equipment. However, the inventory process is being conducted
by state agency staff and the contractor without sufficient department oversight.
Given the potential impact of this process on additional costs to the State, the
Department should reassign staff to oversee the inventory process, or, if necessary,
reallocate existing funding or take other steps, as appropriate, to hire a private
contractor to oversee the process. Additionally, to protect the network, the
Department should work with its Information Services Division to ensure that the
contractor develops an adequate security plan that meets the contract requirements
and contains all the features of an appropriate security plan.
Agencies will phase in consolidated telecommunications
management
In order to consolidate the management of state agency telecommunication services
under one contractor, the Department and its contractor need to perform several
activities. These include a phased approach to consolidating the management of all
executive branch agency telecommunications services under a single contractor
who will provide telecommunications, equipment maintenance, long distance, and
other telecommunications services. Prior to the contract, state agencies
independently obtained these services from the Department or other contractors.
Office of the Auditor General
FINDING 2
page 23
The contractor will transition agencies to a single provider for telecommunications
services in two phases. With the completion of Phase 1, the contractor began
offering services and billing those agencies that previously had telecommunications
services supplied by the Department’s Arizona Telecommunications System (ATS).
According to department records, this accounted for approximately 30 percent of
voice and data telecommunications services provided to state agencies. Agencies
separately obtained the remaining 70 percent of telecommunication services. During
the summer of 2005, the contractor and the Department evaluated the results of the
Phase 1 transition, updated transition plans for Phase 2, and began transitioning the
remaining state agencies to the contractor providing telecommunications services.
This transition to a consolidated telecommunications management under the
contractor consists of several additional changes to each agency’s operations. As
each agency is transitioned, several processes will be carried out, including:
The Arizona
Telecommunications
System provided about
30 percent of the voice
and data services
provided to the State.
State of Arizona
page 24
When will agencies be transitioned?
Phase 1: According to the Department, Phase 1 was substantially completed by the beginning of
July 2005. During that time, the contractor began offering services and billing agencies that
previously had telecommunications services provided by the Department’s Arizona
Telecommunications System. These agencies include the Department of Education, the Arizona
State Parks Board, and the Department of Commerce.
Phase 2: The following agencies that used other contractors for telecommunications services are
scheduled for transition beginning in August 2005. The Department expects all agencies to be
transitioned by March 2006:
• August 2005—Arizona Health Care Cost Containment System, the Departments of Revenue,
Game and Fish, and Environmental Quality, and the Arizona School for the Deaf and Blind.
• September 2005—The Department of Transportation and the Department of Corrections.
• October 2005—The Department of Economic Security.
• November 2005—The Department of Education, the Arizona State Retirement System, and
Boards and Commissions.
• December 2005—The Department of Public Safety.
• January 2006—Remaining state agencies.
􀁺􇨠 Implementing contractor management systems—The contractor will implement
management processes and software systems necessary to provide
telecommunications services to each agency. The contractor plans to
implement an electronic billing system within each agency, install a system
linking the agency to a help desk used for requesting telecommunications
support or services, and implement an asset inventory management system that
records and tracks the telecommunications equipment the agency owns.
􀁺􇩒 Resolving current agency telecommunications services contracts—The
contractor will work with the Department’s Telecommunications Program Office
(TPO) and each agency to review existing telecommunications services
contracts. This will involve a review of each contract to determine whether the
contractor will manage the contract itself on behalf of the agency, terminate it
and provide the services itself, or allow the State to retain and continue to pay
the contract. The TPO has assigned staff to assist in this process and work with
the agency and the contractor to identify and review the agency’s existing
contracts. The contractor intends to terminate most existing agency contracts
for telecommunications maintenance and support, and transfer the work to itself
or its subcontractors. The Department and the contractor believe there will be
little difficulty in replacing contracts, according to the TPO staff member
assigned to help in this process, because the TPO has encouraged agencies to
adopt short-term contracts with their current vendors. The contractor indicates
that it will retain contracts where it is appropriate to do so; for example, where
there is a substantial termination penalty.
􀁺􇩐 Performing an inventory—The contractor, with the help of agency staff, will
conduct a physical inventory of each agency’s telecommunication assets. As of
July 2005, a department official indicated that the physical inventory process
was complete for the agencies transitioned to the single provider as part of
Phase 1. As each agency transitions during Phase 2, its telecommunications
equipment will be inventoried. An accurate, state-wide inventory of this
equipment does not currently exist, and one is needed to determine precisely
what equipment exists at state agencies and whether it is obsolete. While the
Department estimated that there were approximately 40,000 telephone sets
state-wide prior to entering into the contract, the contract requires a precise
counting of state telecommunications assets covered under the contract.
Therefore, the Department plans to request that agencies document their
telecommunications equipment, identifying the manufacturer’s version of the
equipment; location of telephones, voice, and wide-area network telephone
circuits; and telecommunications software applications. The contractor will
attempt to confirm these records using a combination of site visits and
diagnostic tools, and record the assets in a centralized database.
An accurate, state-wide
inventory of
telecommunications
equipment is needed to
assess agencies’
equipment needs.
Office of the Auditor General
page 25
Department should oversee inventory process
The Department should assign a technology expert to oversee the process of
identifying and categorizing state telecommunications equipment. An accurate
inventory of this equipment is needed to determine an agency’s telecommunications
equipment needs and costs under the contract, and to identify costs for equipment
upgrades. However, although the performance and outcome of the inventory will
have a significant effect on the revenues that the contractor can earn under the
contract, the Department has not dedicated sufficient resources to oversee this
process. Instead, it plans to rely on agency staff and the contractor to develop the
inventory and thus determine additional costs under the contract for equipment
upgrades. Therefore, the Department should review the TPO’s current staffing
assignments and reassign staff to this function, or alternatively seek additional
resources from the Legislature or a private contractor to adequately oversee the
inventory process.
Inventory process can impact contract costs—The performance and
outcome of the inventory of state telecommunications equipment will have a
significant effect on the revenues that the contractor can earn under the contract.
Specifically, the inventory process will help determine each agency’s flat fee for
telephone service. Under the contract, telephones are divided into seven categories
and associated service costs depending on the features of the phone. For example,
the contractor’s fees to provide telecommunications service for a single-line
telephone are approximately $40 less than fees for a multi-button phone with a
display that might be used by a call center supervisor. Based on the Department’s
initial estimate of 40,000 telephones state-wide, determining the actual number and
types of telephones that the network will serve will significantly affect the contractor’s
revenues.
Additionally, an accurate inventory of current telecommunications
equipment is necessary to determine whether this equipment can be
successfully integrated into the network. The inventory process will
determine if agency telecommunications equipment that connects to the
network, such as routers or other equipment, such as PBX or key systems,
will need to be upgraded. The contract specifies that if this equipment is
within two versions of the manufacturer’s most recent version of the
equipment, the contractor will upgrade this equipment at no additional
charge. However, if the equipment is no longer supported by the
manufacturer, the state agency will need to purchase the upgrade
separately since it would not be covered under the contract. Therefore, not
only will the contractor assist in developing an accurate inventory, it will
determine which assets that must be upgraded are already covered under
the contract and which assets that must be upgraded are not covered, thus
identifying potential additional costs.
State of Arizona
page 26
What are routers, PBX,
and key systems?
A router is a device that forwards data
along networks.
PBX and key systems are private
telephone networks used within an
enterprise that route telephone calls
between users and allow for the sharing
of a certain number of outside lines for
making calls external to the system.
Finally, a correct inventory of assets is important because the process can allow the
contractor to adjust its contract prices. Specifically, because there was insufficient
information available before the contract was signed, the contract allows the State or
the contractor to revise the scope or prices in the contract once each year. At the
end of the contract’s first year, if the inventory is significantly different from the original
estimates, the contractor can negotiate with the State to adjust its prices.
Department has not dedicated staff to oversee the inventory
process—Despite the potentially significant impact of the inventory process, the
Department has not dedicated personnel to oversee this process. Specifically, the
Department does not have on its staff an expert in the technologies being inventoried
and evaluated to assist agencies with identifying their current equipment, ensuring
equipment is properly identified and categorized, and overseeing the contractor in
this process. Even though the Department has dedicated staff to oversee other
transition activities, such as transferring current agency telecommunications
contracts to the new vendor or overseeing billing, it has not done so for the inventory
process. While the Department originally planned to hire an expert in
telecommunications technology to assist in the inventory process, according to an
agency official, the Department has not obtained this expertise due to budget and
staffing constraints. Instead, the Department continues to rely on agencies and the
contractor to develop accurate inventories of their telecommunications equipment. A
department official also indicated that two staff will be available to assist agencies
and answer their questions. However, these staff have other responsibilities and may
not have the necessary expertise or time to actually oversee the inventory process.
While the Department believes this process mitigates the concern regarding the
inventory process, because of the importance of this inventory process and its effect
on contract costs, the Department should assign a technology expert to oversee this
process. Specifically, the Department should review the TPO’s current staffing
assignments to determine if it can reassign personnel within the TPO to review Phase
1 inventories and oversee Phase 2 inventories. The TPO employs 22 full-time staff,
including contract managers and financial analysts. The Department should review
these staff members’ skills to determine if they have sufficient expertise in
telecommunications technology to appropriately oversee the inventory process. If the
Department determines it is more appropriate to obtain additional staff or expertise,
it should reallocate existing funding or take other steps, as appropriate, to hire a
private contractor to assist in overseeing the inventory process.
Department should improve oversight of network security
To adequately protect the telecommunications network, the Department should
ensure that the contractor develops an adequate security plan that fulfills all contract
The Department needs
to oversee the inventory
process.
Office of the Auditor General
page 27
requirements and contains all appropriate security plan features. The current plan
being developed by the contractor and the Department does not include every
contractually required feature. Additionally, the Department should ensure that the
security plan adequately addresses other important features, including processes for
regularly monitoring the network and enforcing compliance with security standards.
Network security plan does not address all contract requirements—
The contractor has not developed an adequate security plan as required by the
contract. The contract requires the contractor to develop a security plan that
addresses security responsibilities for the state-wide network. These include
managing firewalls that protect the State’s systems that connect to the Internet and
operating equipment that detects and reports intrusions on the network. Ensuring
adequate security for this network is important since agencies will use it to process
and transmit vital and sometimes confidential information. Developing a security plan
also helps to ensure that the contractor will take the necessary steps to assure the
security of the network and that these steps are consistent with the Information
Services Division’s security framework and policies and procedures.
The contractor’s planning efforts thus far do not include all of the contractually
required features. As a preliminary step to creating the plan, the contractor submitted
a “centralized security plan” in April 2005. This plan covers high-level security issues
such as the contractor’s philosophy of how security will be carried out and high-level
design features, such as the security services the contractor offers. According to
department staff, once the Department accepts this plan, the contractor plans to
meet with representatives of state agencies to complete a more detailed network
security plan, which is estimated to be completed by late 2005. While the centralized
security plan covers some detailed information on the equipment used, the plan
does not include features called for in the original contract as part of an overall
network security plan. Specifically:
􀁺􇩐 Plan does not include Security Service Level Agreements (SLAs)—According to
the contract, the network security plan should include SLAs addressing security
concerns and issues. An SLA details the contractor’s responsibilities and the
penalties assessed to contractors if they violate any element of the SLA. For
example, an SLA might specify penalties to the contractor if the network is
unavailable to state users for more than a specified amount of time each month.
While the contract calls for the plan to include security SLAs, the architecture
plan does not include any SLAs detailing contractor responsibilities, or penalties
in the event the contractor fails to prevent data concerning the public or agency
operations from being stolen, deleted, or altered.
􀁺􇨠 Plan does not address state-wide security standards—The contract requires
that the network security plan comply with the Government Information
Technology Agency’s (GITA’s) standards for information technology security.
However, auditors compared the centralized security plan to GITA’s standards
Network security is
critical since agencies
will process and
transmit vital and
confidential information
on the network.
State of Arizona
page 28
and determined that the plan does not address some of these standards. For
example, this plan does not address developing a process, including necessary
controls, to protect the network through ongoing computer program updates,
and does not call for proactively conducting periodic tests to identify and correct
network vulnerabilities.
􀁺􇩐 Plan does not include periodic security awareness and training—The contract
requires the network security plan to include periodic network security
awareness and training for agency personnel. However, the centralized security
plan does not address this issue. This training, which the contractor is required
to provide, is supposed to educate agency personnel on issues that affect
security vulnerability.
Department should ensure an adequate security plan is
developed—The Department, working with the contractor, has taken steps to
begin incorporating some of the missing elements. Specifically, after reviewing the
plan and meeting with auditors, the Department began working with the contractor
to incorporate security SLAs and to address state-wide security standards and
training in a complete security plan that will be developed by late 2005, before the
first agency begins operations on the network. Moreover, the Department should
work with its Information Services Division to ensure that the revised plan
appropriately addresses the contractual requirements and includes any monitoring,
testing, or compliance policies or procedures that the Division develops.
In ensuring this plan’s adequacy, the Department should also determine if it meets
appropriate national standards and benchmarks for what constitutes effective
network security management. For example, an internationally recognized set of
information technology guidelines notes that a successful security plan should define
clear security monitoring and enforcement processes, such as how potential security
breaches or other incidents will be identified, reported, and monitored.1 Moreover,
according to NIST, federal security plans should include analyses of the sensitivity of
the information that the system handles, management controls in place to protect the
system, the systems’ threats and vulnerabilities, and a plan for independent review
of the system’s security. NIST also recommends that organizations get independent
advice and comment on the security plan from individuals within or outside of the
organization, such as the organization’s IT security manager.2 Therefore, the
Department should work with its Information Services Division to ensure that the
contractor’s security plan appropriately includes these relevant aspects of a good IT
security plan. Finally, the Department should develop a process for monitoring the
contractors and work with them to annually update the security plan to reflect any
changes in state-wide network and security standards.
The network security
plan should incorporate
national guidelines and
benchmarks for effective
network security.
1 COBIT Steering Committee. COBIT: Governance, Control and Audit for Information and Related Technology,
Management Guidelines, Critical Success Factors: DS5—Ensure Systems Security. 3rd ed. Rolling Meadows, IL: IT
Governance Institute, 2000.
2 U.S. Dept. of Commerce, Technology Administration. Guide for Developing Security Plans for Information Technology
Systems. NIST Special Publication 800-18. Gaithersburg, MD: National Institute of Standards and Technology, 1998.
Office of the Auditor General
page 29
Recommendations:
1. The Department should improve oversight of the inventory process by:
a. Reviewing the TPO’s current staffing assignments and reassigning staff to
this function or, if necessary,
b. Reallocating existing resources or taking other steps, as appropriate, to hire
a private contractor to adequately oversee the inventory process.
2. The Department should ensure that the contractor develops an adequate
network security plan that includes the following:
a. Requirements stipulated by the contract, including security service level
agreements, compliance with GITA’s state-wide security standards, and
periodic security awareness and training for agency personnel; and
b. Other relevant aspects of an appropriate information technology security
plan, such as defining clear security monitoring and enforcement
processes, and how potential security breaches or other incidents will be
identified, reported, and monitored.
3. The Department should develop a process for monitoring the contractors and
work with them to annually update the security plan to reflect any changes in
state-wide network and security standards.
State of Arizona
page 30
During this audit and in response to a legislative inquiry, auditors collected other
pertinent information related to the billing process and costs under the
telecommunications contract.
Contractor billing system will bring changes
The contractor for the privatized telecommunications network will employ a different
billing system from the one used by Arizona Telecommunications Services (ATS) to
pay for carrier services. In the past, carriers invoiced ATS, and ATS immediately paid
them. Thirty days later, ATS added carrier charges to its monthly agency bills, giving
agencies an additional 30 days to pay their bills. As a result, agencies were paying
for carrier services up to 2 months after ATS received the invoice. In contrast, the
contractor will take 10 days to process the bill then pass the carrier charges directly
to the agency, giving the agencies 20 days to pay. Because changing from ATS to
the contractor involves removing 30 days from the billing process, during the first
year, the contractor will create an extra 13th-month bill. The monthly bill will contain
charges for the five following basic services:
􀁺􇩐 Per-Seat Charges—The contractor will
introduce “per-seat charges,” or
monthly fees, to agencies for each
telephone set (seat) the contractor
services. The per-seat charge varies by
the telephone type and features added
to the telephone. The per-seat charge
covers a variety of costs, including the
costs for monitoring and managing
network equipment; upgrading
equipment and software that was
current at the time the contract was
signed; and providing network security
(see Finding 2, pages 27 through 29).1
1 Under the contract, equipment and software is current if it is within two versions of the manufacturer’s most recent release.
Office of the Auditor General
OTHER PERTINENT
INFORMATION
page 31
What Comprises
a Per-Seat Charge?
For a single-line telephone with no long-distance capability
located on the Capitol Mall in Phoenix or Tucson, the contractor
will charge $42.20 per month during fiscal year 2008. If the
telephone has the capacity to place calls over the state network,
the fee is $46.11. The contractor adds additional charges for
features such as $3 per month for each added phone or fax line,
and $4 per month for a 22-button, add-on module.
Source: Telecommunications outsourcing contract pricing worksheets.
In contrast, ATS did not charge agencies a per-seat fee. Instead, it charged
agencies separately for many of the costs covered under the per-seat pricing
schedule.
􀁺􇩍 Moves, Adds, or Changes (MACs)—The contractor will also charge for service
calls beyond a maximum number allowed under the per-seat charges. The per-seat
charge includes labor and material costs for some alterations or changes
to an agency’s telephone system. Each year, an agency can have a maximum
of one MAC that does not require a service call from the contractor for each
telephone the contractor services and a maximum of one MAC that involves a
service call for every five telephones the contractor services. For example, if an
agency wanted to reset a password or add voice mail, the contractor would not
have to come to the agency, but could perform the changes using remote
software. However, changing from one type of phone to another could be
considered a MAC that requires a site visit. The contractor will charge additional
fees for MACs above the maximum amounts. As of June 2005 the contractor
and the TPO had not determined these fees.
􀁺􇩐 Project Charges—The contractor will also charge agencies for major projects
that are not included in the per-seat charges and are too extensive to qualify as
MAC charges. Examples of such projects include adding equipment, replacing
equipment that is no longer supported by the manufacturer, or removing older
telephone equipment and replacing it with new technologies.
􀁺􇩃 Carrier Charges—The contractor will bill agencies for local and long-distance
service and data services supplied by telephone companies, or carriers, such
as Qwest. However, the contractor is adding new technology through the
privatized network that will allow agencies to reduce these types of telephone
costs by routing calls between state agencies through the network rather than
using traditional phone lines.
􀁺􇨠 Administration Costs—The contractor’s bill will also include charges to reflect
the Department’s costs for administering this contract. These costs are
estimated to be $2.5 million annually for fiscal years 2006 through 2010. These
include personnel costs for staff in the TPO to oversee the contract and operate
a help desk. Additionally, bills will include a charge to recover nearly $500,000 in
costs for department office space and associated costs at buildings that the
contractor and TPO use.
Telecommunications contract costs
To assist state agencies with the transition to privatized telecommunications services,
agency costs for telecommunications services in fiscal years 2006 and 2007 will be
held at their fiscal year 2004 estimated amounts. Specifically, while the contractor has
State of Arizona
page 32
developed a cost estimate of approximately $40 million annually to provide
telecommunications services to the State, it has also agreed to maintain individual
agencies’ telecommunications costs for fiscal years 2006 and 2007 at their fiscal year
2004 estimated amounts. However, more current estimates of state agency
telecommunications spending indicate that agencies’ spending will be more than $8
million less than contract and administrative costs per contract year, and the
Department is exploring several options to address this deficit.
Pricing plan sets agency telecommunications costs at fiscal year
2004 amounts—The contractor has agreed to provide telecommunications
services for approximately $40 million per year when agencies are fully transitioned
to contractor-provided services. The contractor’s pricing proposal is consistent with
a 2004 department study of total state agency telecommunications spending.
Specifically, since agencies have not historically created separate
telecommunications budgets or accounted for all of their
telecommunications costs, the Department conducted a study to
estimate agency telecommunications expenditures during fiscal year
2004. This study estimated that agencies paid $39.9 million for
telecommunications services in fiscal year 2004.
As part of its proposal, the contractor has agreed to hold each individual
agency’s telecommunications costs at or near their estimated fiscal year
2004 amounts for fiscal years 2006 and 2007. In addition to developing
an estimate of state-wide expenditures for telecommunications services,
the department study also found that agencies paid drastically different
rates for telecommunications services. For example, during fiscal year
2004, the Department of Corrections spent approximately $45 per seat
in telecommunications costs, while the Department of Game and Fish
spent over $140 per seat. According to a department official, these cost
differences result from agencies’ differing telecommunications services
needs. However, these costs also served as the basis for agency
telecommunications budgets in fiscal years 2006 and 2007. Therefore, the
TPO indicates that if the contractor’s prices were charged to each agency
immediately, some agencies would significantly exceed their telecommunications
budgets, while others would be well under their budgets. As a result, for fiscal years
2006 and 2007, the contractor will adjust agency bills to make them consistent with
their estimated fiscal year 2004 expenditures.
Revised estimates result in need for additional agency spending—An
ongoing analysis of recent agency spending suggests agencies may need to find
ways to increase their telecommunications funding to match what they will be
charged under the contract. After the contract was awarded, the Department
updated its 2004 study and as of August 2005, estimated that agencies spent only
about $35 million for telecommunications services in fiscal year 2005. In addition to
the contractor costs, as previously mentioned, the Department plans to charge
agencies approximately $3 million in administrative costs to oversee the contractor,
The contractor’s
transitional pricing will
allow agencies to
prepare for 2008
telecommunications
contract costs.
Office of the Auditor General
page 33
Estimated Contract Costs
Fiscal Year Amount
20061 $21,418,000
2007 39,659,000
2008 39,499,000
2009 39,000,000
2010 39,000,000
1 Fiscal year 2006 costs are lower because
state agencies will not be completely
transitioned to contractor-provided services.
Source: Contractor’s contract pricing
workbook.
operate a help desk, and pay for other costs, such as rent for office space. This
represents a more than $8 million difference between estimated agency
expenditures in 2005 and the fiscal year 2006 and 2007 contract and administrative
costs.
The Department is proposing several actions to address this funding deficit for fiscal
years 2006 and 2007. First, according to department staff, the Department is
proposing to deter $3.1 million in contractor charges for fiscal year 2006 until fiscal
year 2007 or later. State agencies will eventually need to pay their amount plus
interest. To address the remaining fiscal year 2006 deficit, department staff indicated
that the Department is working with the Governor’s Office of Strategic Planning and
Budgeting and the contractor to develop other options, including using up to $1.7
million in carrier cost savings to offset agencies’ costs. For fiscal year 2007, the
Department is proposing that agencies approach the Legislature for a supplemental
budget request to fund the approximately $8 million deficit
between estimated agency spending and the contract
costs, and to begin to pay the $3.1 million deferred from
fiscal year 2006. According to department staff, the
Department plans to continue to work with agencies to
revise agency spending estimates, and intends to submit a
proposal to the TEGC in September 2005 for addressing the
deficit.
Beginning in fiscal year 2008, the contractor will stop
adjusting each agency’s bills to match 2004 spending.
Recognizing that agencies’ costs may change, the
Legislature passed Laws 2005, Chapter 301, requiring the
Department to report to the Joint Legislative Budget
Committee a consolidated telecommunications budget
report demonstrating the previous fiscal year’s actual
payments and the next year’s anticipated payments for state
agency telecommunications services. Since all agencies will
be affected by this pricing change starting in fiscal year
2008, some agencies may need to adjust their budgets to
reflect the changes in telecommunications costs.
State of Arizona
page 34
What Are Carrier Cost Savings?
According to the contractor, the move to a single,
privatized telecommunications network should result in
some cost savings that originally were to be reinvested in
the state-wide network. Prior to this new contract, state
agencies could purchase their voice or data connections
independently, creating multiple and separate
telecommunications network connections. Cost savings
would result from the contractor consolidating unneeded
voice and data connections and adding new technologies
allowing agencies to route interagency calls through the
telecommunications network to save on telephone toll
charges. The Department originally planned to use this
savings to support various agency telecommunications
projects, such as upgrading agency equipment attached
to the network, but has since proposed using this money
to assist with transition pricing.
Office of the Auditor General
AGENCY RESPONSE
State of Arizona
Janet Napolitano
Governor
Jerry A. Oliver, Sr.
Interim Director
ARIZONA DEPARTMENT OF ADMINISTRATION
OFFICE OF THE DIRECTOR
100 North 15th Avenue • ROOM 401
PHOENIX, ARIZONA 85007
(602) 542-1500
September 21, 2005
Debbie Davenport
Auditor General
2910 North 44th Street, Suite 410
Phoenix, Arizona 85018
Dear Ms. Davenport:
The Department of Administration appreciates the efforts of the Auditor General’s Office and
professionalism in conducting the sunset audit for the Information Systems Division and newly
created Telecommunications Program. These are dynamic areas where the department
attempts to use technology for the betterment of state government. We as a department
understand there is always room for improvement in any of our business activities. The
Department appreciates the patience and discipline of the Auditor General’s office during this
audit, especially when the Department is in the midst of the major transformation taking place
in the outsourcing of telecommunications for all state government.
The Department appreciates the importance of security in today’s current technology
environments, and to that end, has established a robust framework with the AzNet program to
address network security through the outsourced contract that will effectively raise the security
posture for all state government. We are keen to pursue the ideas suggested for legislative
action to better serve state agencies. We also realize that AZNET security, in particular, needs
to be a funded activity within ISD so there is a division of responsibilities between ISD and
TPO/AZNET.
Sincerely,
Jerry A. Oliver
Interim Director
Enclosure
ADOA Agency Response, by Section and Finding
Auditor General Recommendations - ISD
1. The Department should designate a central authority, such as its state-wide security
manager, with the responsibility for developing a comprehensive security program for
the Department’s internal information resources and network, as well as the data center.
The Department should then ensure that the program addresses:
a. Developing a policy governing network scanning, monitoring, and testing,
including how it should be done, the frequency, and follow-up procedures to
correct identified vulnerabilities;
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing with
the finding will be implemented. While we agree with the recommendation to
establish the policies, the Department is concerned there may not be sufficient
funding for implementing those policies. As with b. and c. below, this is often
beyond what our customers expect and can pay for, which by default, will cause
conflicts with our customers.
b. Ensuring that it obtains an independent security assessment at least every 3
years and developing policies regarding under what circumstances it would
obtain an independent assessment more frequently;
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing with
the finding will be implemented. While we agree with the recommendation to follow
best practices, the Department is concerned there may not be sufficient funding for
independent security assessments at that frequency.
c. Conducting risk assessments at least every 3 years and as needed when
systems, facilities, or other conditions change;
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing
with the finding will be implemented. While we agree with the recommendation to
follow best practices, the Department is concerned there may not be sufficient
funding for risk assessments at that frequency.
d. Developing a system to follow up on identified risks and weaknesses to ensure
that they are addressed;
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
e. Developing adequate security policies and procedures and ensuring that they
include sufficient detail; and
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
f. Providing annual security awareness training as provided for in both GITA and
department policy.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
2. The Department should determine if it needs additional staff, funding, and technical
resources to perform additional security duties and if so, assess whether it could
reassign existing staff and resources or take other steps, as appropriate, to seek
additional staff and resources.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
3. The Department should request that the Legislature amend A.R.S. §41 -712 to give the
Department statutory authority to enforce security requirements on state agencies using
AZNE. If the Department receives such authority, it should ensure that it becomes part
of its comprehensive security program in conjunction with the first recommendation.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented. While we agree with the intent of the recommendation, the Department is
concerned there will exist a conflict in statutory authority between 41-172 and the
existing authority of GITA for statewide security, including the extent of the
recommendation to GITA to create a Chief Security Officer role for state government.
The Department will work with GITA to determine the best approach to address the gap
in current statutes to enforce enterprise architecture security standards for AzNet, while
ensuring conflicts are not created with the statutory authority being sought.
4. The Department should enhance its interagency service agreements with state
agencies that use the data center to define the Department’s and the agencies’ security
responsibilities The agreements should:
a. Delineate the Department’s responsibility to provide access to the state data
center and the state agency’s responsibility to meet specific, minimum security
requirements; and
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
b. Define the circumstances under which a state agency may face actions for
failure to comply with those security requirements, and the actions the
Department can take to better ensure that corrupted computers in one agency do
not compromise other agencies’ systems and data.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
5. The Information Services Division should better ensure that it does not publish sensitive
information on its Web site by developing a policy requiring central review and approval
of Web site content. The Division should also review current Web content to ensure that
sensitive information has not remained on its Web site, and instead maintain any
sensitive information in a more secure environment, such as the Department’s internal
network that is not available to the public.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
6. The Department should configure its information system resources, such as routers,
switches, and servers, to comply with GITA standards to provide greater safety from
external threats.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Auditor General Recommendations - TPO
1. The Department should improve oversight over the inventory process by:
a. Reviewing the TPO’s current staffing assignments and reassigning staff to this
function or, if necessary,
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing
with the finding will be implemented. The FY06 budget request included
technical staff that were not in the final appropriation. The TPO will look to other
agency resources on an ad hoc basis.
b. Reallocating existing resources or taking other steps, as appropriate, to hire a
private contractor to adequately oversee the inventory process.
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing
with the finding will be implemented. The FY06 budget request included
technical staff that were not in the final appropriation. The Department will
implement a detailed process including resources of the AzNet team, the TPO
and the other Agencies during the transition of an Agency onto the AzNet
contract.
2. The Department should ensure that the contractor develops an adequate network
security plan that includes the following:
a. Requirements stipulated by the contract, including security service level
agreements, compliance with GITA’s state-wide security standards, and periodic
security awareness and training for agency personnel; and
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation
will be implemented. This finding may require legislation (as identified in finding
recommendation #3) to enforce security requirements on state agencies using
AZNET.
b. Other relevant aspects of an appropriate information technology security plan,
such as defining clear security monitoring and enforcement processes, and how
potential security breaches or other incidents will be identified, reported and
monitored.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
3. The Department should develop a process for monitoring the contractor and work with
them to annually update the security plan to reflect any changes in state-wide network
and security standards.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented
03-08 Arizona Department of
Commerce
03-09 Department of Economic
Security—Division of Children,
Youth and Families,
Child Protective Services—
Caseloads and Training
04-L1 Letter Report—Arizona Medical
Board
04-L2 Letter Report—Gila County
Transportation Excise Tax
04-L3 Letter Report—Department of
Economic Security—Population
Estimates
04-01 Arizona Tourism and
Sports Authority
04-02 Department of Economic
Security—Welfare Programs
04-03 Behavioral Health Services’
HB2003 Funding for Adults
with Serious Mental Illness
04-04 Department of Emergency and
Military Affairs and
State Emergency Council
04-05 Department of Environmental
Quality—Water Quality Division
04-06 Department of Environmental
Quality—Waste Programs
Division
04-07 Department of Environmental
Quality—Air Quality Division
04-08 Department of Environmental
Quality—Sunset Factors
04-09 Arizona Department of
Transportation, Motor Vehicle
Division— State Revenue
Collection Functions
04-10 Arizona Department of
Transportation, Motor Vehicle
Division—Information Security
and E-government Services
04-11 Arizona Department of
Transportation, Motor Vehicle
Division—Sunset Factors
04-12 Board of Examiners of Nursing
Care Institution Administrators
and Assisted Living Facility
Managers
05-L1 Letter Report—Department
of Health Services—
Ultrasound Reviews
05-01 Department of Economic
Security—Division of
Employment and
Rehabilitation Services—
Unemployment Insurance
Program
05-02 Department of Administration—
Financial Services Division
05-03 Government Information
Technology Agency (GITA) &
Information Technology
Authorization Committee (ITAC)
05-04 Department of Economic
Security—Information Security
05-05 Department of Economic
Security—Service Integration
Initiative
05-06 Department of Revenue—Audit
Division
05-07 Department of Economic
Security—Division of
Developmental Disabilities
05-08 Department of Economic
Security—Sunset Factors
05-09 Arizona State Retirement
System
05-10 Foster Care Review Board
Performance Audit Division reports issued within the last 24 months
Future Performance Audit Division reports
Department of Administration—Human Resources Division
Department of Administration—Sunset Factors

Copyright to this resource is held by the creating agency and is provided here for educational purposes only. It may not be downloaded, reproduced or distributed in any format without written permission of the creating agency. Any attempt to circumvent the access controls placed on this file is a violation of United States and international copyright laws, and is subject to criminal prosecution.

Performance Audit
Department of
Administration—
Information Services Division and
Telecommunications Program Office
Performance Audit Division
Debra K. Davenport
Auditor General
SEPTEMBER • 2005
REPORT NO. 05 – 11
A REPORT
TO THE
ARIZONA LEGISLATURE
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting services
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Senator Robert Blendu, Chair Representative Laura Knaperek, Vice Chair
Senator Carolyn Allen Representative Tom Boone
Senator Gabrielle Giffords Representative Ted Downing
Senator John Huppenthal Representative Pete Rios
Senator Harry Mitchell Representative Steve Yarbrough
Senator Ken Bennett (ex-officio) Representative Jim Weiers (ex-officio)
Audit Staff
Melanie Chesney, Director
Dale Chapman, Manager and Contact Person
Channin DeHaan, Team Leader
Aaron Cook
Jay Dunkleberger
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
September 26, 2005
Members of the Arizona Legislature
The Honorable Janet Napolitano, Governor
Mr. Jerry Oliver, Interim Director
Arizona Department of Administration
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Department of
Administration—Information Services Division and Telecommunications Program Office. This
report is in response to a November 20, 2002, resolution of the Joint Legislative Audit Committee.
The performance audit was conducted as part of the sunset review process prescribed in Arizona
Revised Statutes §41-2951 et seq. I am also transmitting with this report a copy of the Report
Highlights for this audit to provide a quick summary for your convenience.
As outlined in its response, the Department of Administration agrees with all of the findings and
plans to implement or implement in a different manner all of the recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on September 27, 2005.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
Services:
The Information Services Division (Division) delivers state-wide information technology services to
executive branch agencies and provides technology services to support internal functions within
the Department of Administration (Department). In addition to eight positions that report to the
assistant director and provide administrative support and plan-ning,
the Division provides services in five main areas:
􀁺􇩉 Information Processing Center—Operates and main-tains
the Department’s data center, which provides
data processing and storage services for state agen-cies
such as the Arizona Health Care Cost
Containment System, the Arizona Department of
Transportation, and the Department of Revenue.
􀁺􇩓 Security—Conducts a variety of security services for
the Department and other state agencies, such as
providing state employees with computer system and
network security access, and security training for
department employees.
􀁺􇩉 Internal Technology—Provides support for the
Department’s desktop computers, operates the
Department’s internal agency network, and supports
the Department’s Arizona Financial Information
System and the Human Resources Information
Solution.
􀁺􇩆 Finance and Planning—Provides budget, planning,
and financial analysis to the Division and determines
the rates agencies are charged for services. This sec-tion
also administers the Department’s 9-1-1 telecom-munications
services.
􀁺􇩃 Customer Care Services—Provides liaison services
and customer support to the Division’s internal and
external customers and houses the state switch-board,
which answers calls to a central state number
and routes them to the appropriate person or agency.
Facilities:
The Department’s headquarters are located at 100 North
15th Avenue in Phoenix and are leased under the private
lease-to-own (PLTO) program. In fiscal year 2005, the
PROGRAM FACT SHEET
Department of Administration
Information Services Division
Division revenue:
$27.4 million (fiscal year 2005, estimated)
Division staffing:
138.75 filled postions and 26.9 vacancies (as of July 2005)1
Office of the Auditor General
Security—10
Customer Care
Services—20.35
Assistant
Director—7
Finance and
Planning—8.5
Internal
Technology—32.9
Information Processing
Center—60
$0
$5
$10
$15
$20
$25
$30
$35
$40
FY2003 FY2004 FY2005 (est.)
Millions
Technology and Telecommunications Fund
1 Includes 11 FTE funded by the Telecommunications Program Office appro-priation
but housed in the Division.
Division used approximately 21,000 square feet at this facility and paid an annual lease fee of
approximately $419,000. In addition, the Division leases office or storage space in three other
buildings in Phoenix and two buildings in Tucson, and paid annual lease fees of approximately
$390,000 for those facilities.
Equipment:
In addition to common office equipment, the Division has specialized equipment for which it has
state- or department-wide responsibility, such as the mainframe system, backup power genera-tors,
servers, and other network equipment.
Mission:
The Division has adopted the Department’s mission:
To provide effective and efficient support services to enable government agencies, state employ-ees,
and the public to achieve their goals.
Goals:
The Division has adopted the Department’s three goals:
1. To deliver customer service second to none.
2. To attract and retain a high-performance team of employees.
3. To aggressively pursue innovative solutions and/or opportunities.
Adequacy of performance measures:
The Division’s 66 performance measures are generally adequate and include measures for out-come,
output, efficiency, and quality. Almost all of the Division’s service units have their own set
of performance measures, and each of the measures directly corresponds to one of the
Division’s three goals. However, Customer Care Services does not have any performance meas-ures.
The Division should develop performance measures that help ensure Customer Care
Services meets division goals, such as the time it takes to respond to customer requests for serv-ice
and customer satisfaction with the help desk.
State of Arizona
Source: Auditor General staff compilation of unaudited information obtained from the Arizona Financial Information System (AFIS) for the years
ended June 30, 2003 and 2004; the Department’s fiscal years 2005-2009 strategic plan; and other information provided by the
Department, including financial estimates for the year ended June 30, 2005.
Services:
The Telecommunications Program Office (TPO) was created by the Legislature in 2005 to enter
into a contract with a contractor to provide for the telecommunications needs for each state office,
department, or agency. The contractor will manage telecommunications services for all executive
branch state agencies, including obtaining local and long-distance telephone calling service and
building a state-wide telecommunications network.
Funding:
Although the Department of Administration (Department)
organized the TPO in fiscal year 2005 and funded it with part
of the Information Services Division appropriation, the TPO
did not receive its initial appropriation of nearly $2.2 million
until fiscal year 2006. This includes $350,000 in a one-time
appropriation for professional and outside services, and a
$9,000 one-time appropriation for equipment.
Facilities:
The TPO uses approximately 3,000 square feet of the
Department of Administration facilities at 100 N. 15th Avenue
in Phoenix, Arizona. In addition, the telecommunications con-tractor
uses approximately 12,000 square feet at two depart-ment
buildings in Phoenix, and a third in Tucson. To reim-burse
the Department for the approximately $200,000 in
costs associated with the use of these facilities, the
Department plans to add a surcharge to agency telecom-munications
bills in fiscal year 2006.
Equipment:
The TPO owns common office equipment, but is also charged with administering a contract that
develops a unified state voice and data network for executive branch agencies.
PROGRAM FACT SHEET
Department of Administration
Telecommunications Program Office
Office of the Auditor General
Program staffing:
11 FTE (fiscal year 2006)1
Communications
Analyst—1
Financial
Analyst—1
Administrative—2
Contract
Managers—3
Project or
Program Managers—4
1 Eleven FTEs who assist with network security, switchboard, and
helpdesk are housed in the Information Services Division.
Mission:
The TPO has adopted the Department’s mission:
To provide effective and efficient support services to enable government agencies, state employ-ees,
and the public to achieve their goals.
Goals:
The TPO has adopted the Department’s three goals:
1. To deliver customer service second to none.
2. To attract and retain a high-performance team of employees.
3. To aggressively pursue innovative solutions and/or opportunities.
Adequacy of performance measures:
The TPO was formally created in statute as of June 30, 2005, and at the time of this audit had
not developed performance measures to meet its goals. According to a department official, the
TPO plans to create these performance measures by the end of October 2005 and is currently
in the process of developing customer service questions evaluating agency satisfaction with var-ious
aspects of state-wide telecommunications services.
Therefore, the TPO should ensure it develops appropriate measures such as those evaluating
agency satisfaction with the contractor’s telecommunications service and the contractor-man-aged
state-wide privatized network, and the effective use of a state-wide investment pool to pur-chase
telecommunications equipment.
State of Arizona
Source: Auditor General staff compilation of unaudited information obtained from the State of Arizona, FY 2006 Appropriations Report; Arizona
Revised Statutes; contracting documents; and other information provided by the Department.
The Office of the Auditor General has conducted a performance audit of two areas
within the Arizona Department of Administration—the Information Services Division
and the Telecommunications Program Office—pursuant to a November 20, 2002,
resolution of the Joint Legislative Audit Committee. This audit was conducted as part
of the sunset review process prescribed in Arizona Revised Statutes (A.R.S.) §41-
2951 et seq and is the second in a series of four reports on the Department of
Administration (Department). The first audit reviewed the Department’s Financial
Services Division (Auditor General Report No. 05-02), and the third audit will review
the Department’s Human Resources Division, including the State’s self-funded
health benefits program. The final report will be an analysis of the 12 statutory sunset
factors.
The Information Services Division (Division) provides a variety of information
technology and telecommunications services to the Department and other state
agencies, including maintaining and operating the department mainframe, providing
information security services to the Department and other state agencies, supporting
the Department’s computer network, and operating the State’s main telephone
switchboard. The Telecommunications Program Office (TPO) provides oversight for
a 5-year, approximately $40-million-per-year telecommunications outsourcing
contract required under Laws 2003, Chapter 263, Section 101. Under a contract
signed in January 2005, the State will consolidate management of all executive
branch telecommunications services under a single contractor. Further, the
contractor is required to create a single state-wide voice and data network used by
executive branch agencies called AZNET.
Several actions needed to improve information security
(see pages 11 through 21)
The Department should take a variety of actions to further ensure the security of the
State’s information systems and the data stored on them. The Department maintains
and secures some of the State’s most sensitive information technology (IT) resources
and data, including driver’s license and vehicle registration information and state
employees’ payroll information. While the Department performs some security
functions well, such as properly securing its desktop computers, it does not perform
Office of the Auditor General
SUMMARY
page i
many functions that national guidelines dictate. Specifically, the
Department does not perform regular monitoring and testing of its
internal network in order to identify and resolve potential system
vulnerabilities. This lack of monitoring and testing increases the risk of
network intrusion, which could allow a hacker to gain access to
sensitive systems and data. Additionally, the Department has not
performed risk assessments to identify and evaluate the risks to the
security of its information resources, developed comprehensive
security policies and procedures, ensured corrective actions are
implemented to address identified security weaknesses, and
provided annual security awareness training to department
employees.
To ensure that the Department has a coordinated security program
that addresses the deficiencies described above, it should establish a
centralized and comprehensive security program. Specifically, the
Department should assign one of its positions, such as the state-wide
security manager, the responsibility for administering a
comprehensive security program. The Department should determine if it needs
additional resources, including staff to enhance security. If additional staff and
resources are needed, the Department should assess whether it could reassign
existing staff and resources or take other steps, as appropriate, to seek additional
staff and resources.
Additionally, the Department should request statutory authority to enforce security
requirements that state agencies must follow to use AZNET. Currently, no agency has
statutory authority to enforce security standards for information systems shared by
state agencies. GITA has statutory authority to issue state-wide security standards,
but not operational authority to enforce its standards. Further, GITA’s functions do not
include the daily oversight of AZNET that would be necessary to enforce its
standards.
Finally, the Department needs to restrict public access to its information system
resources. Specifically, the Division does not centrally control Web site content, and
as a result, some inappropriate and sensitive details appear on its Web site. Further,
some department IT resources are configured in such a way as to potentially be
identified and manipulated by unauthorized external users.
State of Arizona
page ii
What Are the Department’s
Networks?
Internal Network—The Department maintains
a network of computers linking its divisions to
serve its internal needs.
State Network—A network linking state
agencies, allowing them access to data and
computer applications housed in the Division.
This network will be expanded to form
Arizona Network (AZNET), a consolidated,
privatized telecommunications network that
will provide both voice and data capabilities.
The AZNET is scheduled to be completed in
May 2006.
Improved oversight of telecommunications consolidation and
privatized network needed (see pages 23 through 30)
The Department should improve its oversight of activities related to consolidating
telecommunications support services and developing a single, privatized
telecommunications network. To consolidate these services, the Department and its
contractor will perform several activities during a transition period that will last until
March 2006, including an inventory of agency telecommunications equipment. An
accurate inventory of this equipment is needed to determine an agency’s
telecommunications equipment needs and costs under the contract, and to also
identify costs for equipment upgrades. For example, the inventory will determine
which of seven categories each of the State’s approximately 40,000 phones falls into.
Service costs for these phones can vary as much as $40 per month, per phone.
The Department plans to rely on state agencies’ staff and the contractor to develop
the inventory and thus determine additional costs under the contract for equipment
upgrades. To ensure an accurate inventory is conducted, the Department should
either reassign personnel to work on the inventory or contract for a technology expert
to oversee this process. The Department should review its current staffing
assignments to determine if it can reassign personnel within the Department; if not,
it should seek to reallocate funding to hire a contractor.
Additionally, the Department should work with its Information Services Division and
the contractor to develop an adequate security plan for the privatized
telecommunications network. The contract requires that the contractor prepare a
network security plan, but the contractor’s planning efforts thus far do not address all
needed security features. Instead, the contractor indicated that a more complete
security plan that will address all contractual requirements, such as compliance with
state security standards, will be developed by late 2005. The Department should
ensure that the contractor develops this plan as required.
Other pertinent information (see pages 31 through 34)
During this audit and in response to a legislative inquiry, auditors collected other
pertinent information related to the billing process and costs under the
telecommunications contract. Specifically:
􀁺􇨠 Billing—The contractor for the privatized telecommunications network will adopt
a single billing system used by all agencies to pay for carrier services. In the
past, agencies contracting these services from the Department had as much as
2 months to pay their bills. Under the contract, agencies will have 20 days to pay
Office of the Auditor General
page iii
their bills. The bills will reflect charges for each telephone that an agency
maintains, service calls, adding or replacing equipment, local and long-distance
service, and the Department’s costs to oversee the contractor and operate a
help desk.
􀁺􇨠 Contract costs—The contractor has agreed to provide telecommunications
services for approximately $40 million per year when agencies are fully
transitioned to contractor-provided services. However, to assist state agencies
with the transition to privatized telecommunications services, individual agency
costs for telecommunications services in fiscal years 2006 and 2007 will be held
at or near their fiscal year 2004 estimated amounts as determined by a 2004
department study of state agency telecommunications spending. Because of
differences in the rates that agencies have been paying for these services, the
TPO indicates that if the contractor’s prices were charged to each agency
immediately, some agencies would significantly exceed their
telecommunications budgets, while others would be well under their budgets.
As a result, for fiscal years 2006 and 2007, the contractor will adjust agency bills
to make them consistent with their estimated 2004 expenditures.
After the contract was awarded, the Department updated its 2004 study and as
of August 2005, estimated that agencies spent only approximately $35 million
for telecommunications services in fiscal year 2005. In addition, the Department
plans to charge agencies approximately $3 million annually in administrative
costs to oversee the contractor, operate a help desk, and pay for other costs,
such as rent for office space. As a result, the Department estimates that there
will be a more than $8 million deficit in fiscal years 2006 and 2007 between
agency expenditures and contract and administrative costs. The Department is
exploring several options to address this deficit, including deferring $3.1 million
in contractor charges for fiscal year 2006 until later fiscal years, using carrier cost
savings, and proposing that agencies approach the Legislature for a
supplemental budget request.
Beginning in fiscal year 2008, the contractor’s normal prices will go into effect.
All agencies will be affected by this change in pricing, and some agencies may
need to adjust their budgets to reflect the changes in telecommunications costs.
State of Arizona
page iv
Office of the Auditor General
TABLE OF CONTENTS
continued
page v
1
11
11
12
16
19
20
23
23
26
27
30
31
31
32
Introduction & Background
Finding 1: Several actions needed to improve
information security
Security of information systems important
Department performs some security functions well, but lacks
coordinated security program
Department should implement coordinated information security
program
Department needs to better limit access to information system
resources
Recommendations
Finding 2: Improved oversight of telecommunications
consolidation and privatized network needed
Agencies will phase in consolidated telecommunications
management
Department should oversee inventory process
Department should improve oversight of network security
Recommendations
Other Pertinent Information:
Contractor billing system will bring changes
Telecommunications contract costs
State of Arizona
TABLE OF CONTENTS
concluded
page vi
Agency Response
Tables:
1 Technology and Telecommunications Fund
Schedule of Revenues and Expenditures, in Thousands
Years Ended June 30, 2003, 2004, and 2005
(Unaudited)
2 Security Functions the Department Performs Well
3 Network Testing and Recommended Frequency
Figure:
1 Planned Agency Network (AZNET)
7
13
14
4
The Office of the Auditor General has conducted a performance audit of two areas
within the Arizona Department of Administration—the Information Services Division
and the Telecommunications Program Office—pursuant to a November 20, 2002,
resolution of the Joint Legislative Audit Committee. This audit was conducted as part
of the sunset review process prescribed in Arizona Revised Statutes (A.R.S.) §41-
2951 et seq and is the second in a series of four reports on the Department of
Administration (Department). The first audit reviewed the Department’s Financial
Services Division (Auditor General Report No. 05-02), and the third audit will review
the Department’s Human Resources Division, including the State’s self-funded
health insurance program. The final report will be an analysis of the 12 statutory
sunset factors.
Information Services Division history, programs, and
staffing
The Department of Administration’s Information Services Division (Division) provides
a variety of information technology services to the Department and other state
agencies. In 1972, the Legislature created the Department of Administration,
including a Data Processing Division, to provide for the collection, storage, and
processing of data and to develop and maintain a coordinated state-wide plan for
data processing and data communication systems. Laws 1996, Chapter 342,
removed the state-wide planning function from the Department by transferring that
responsibility to the Government Information Technology Agency (GITA). The Division
currently provides information technology services and support both within the
Department and to other state agencies. Services and support include activities such
as mainframe and other types of data processing, creating and maintaining Web
sites, and maintaining and providing technical support for both the Department’s
internal network and the state-wide network.
As of July 2005, the Division had 165.65 positions with 26.9 vacancies. Six filled
positions report directly to the assistant director and provide administrative support,
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
business continuity and disaster planning, and technology planning for the Division.
In addition, the Division has five sections carrying out its numerous responsibilities:
􀁺􇩉 Information Processing Center (60 filled positions)—Also known as the data
center, this section operates and maintains the Department’s mainframe that
runs high-volume applications for the Department and approximately 50 other
state agencies, such as the Arizona Health Care Cost Containment System, the
Arizona Department of Transportation (ADOT), and the Department of Revenue.
For example, the mainframe houses ADOT’s title and registration database,
which includes information such as names, addresses, social security numbers,
driving records, and vehicle records. Over the course of a week, the mainframe
processes more than 8 million transactions or queries on ADOT’s data. The data
center also maintains servers that provide computer processing for applications
that process smaller numbers of transactions. For example, the Department’s
Human Resources Information Solution is housed on several servers in the Data
Center, and the Naturopathic Physicians Board of Medical Examiners leases
server space from the Department. The Data Center operates 24 hours per day,
7 days per week and charges fees to agencies for the services it provides.
􀁺􇩓 Security (10 filled positions)—This section conducts a variety of security services
for the Department and other state agencies, such as providing some state
employees with mainframe access, and security training for department
employees. In addition to its services for the Department, according to the
section’s manager, if an agency requests it, the section will use software to scan
the agency’s networks to identify security vulnerabilities, and monitor intrusions
and illegal attempts to access state agency data networks.
􀁺􇩉 Internal Technology (32.9 filled positions)—This section provides support for the
Department’s desktop computers and operates the Department’s internal
agency network. This section also tests and ensures that security patches are
installed on agency desktop computers and supports the Department’s Arizona
Financial Information System and the Human Resources Information Solution.
􀁺􇩆 Finance and Planning (8.5 filled positions)—This section provides budget,
planning, and financial analysis to the Division. The section is responsible for
determining the rates that agencies are charged for services and refunding any
overcharges. This section also houses the Department’s 9-1-1
telecommunications services. The Department is required to administer and
disburse the 9-1-1 excise tax that is deposited into the emergency
telecommunication services’ revolving fund, and it reviews and approves
political subdivisions’ payment requests for operating emergency
telecommunication service systems.
State of Arizona
page 2
􀁺􇩃 Customer Care Services (20.35 filled positions)—This section provides support
to the Division’s internal and external customers and houses the state
switchboard, which answers calls to the State’s central number and routes them
to the appropriate person or agency.
Telecommunications services
The Department also provides oversight for the State’s privatized
telecommunications services contractor and AZNET, the State’s privatized
telecommunications network. Under Laws 2003, Chapter 263, the Legislature
required GITA, in consultation with the Department, to privatize telecommunications
services for all executive branch agencies. In January 2005, the Department awarded
a 5-year, approximately $40 million annual contract, with options for up to two 2-year
extensions to a single contractor to carry out this legislative mandate. The contract
provides for the following:
􀁺􇩃 Consolidates management of telecommunications services under a single
contractor—The contractor will provide telecommunications services for all
executive branch agencies. Prior to the contract, the Department’s Arizona
Telecommunications System (ATS) provided approximately 30 percent of voice
and data telecommunications services to state agencies. Agencies separately
obtained the remaining 70 percent of telecommunication services from private
providers who supplied telephone maintenance, long distance, Internet, and
other services. Each state agency that worked with a private contractor
managed and maintained its own telecommunications network and its own
equipment inventory, including when to upgrade or purchase new equipment.
Under the new contract, a single contractor will provide or coordinate these
services for all executive branch agencies and eventually eliminate the separate
contracts that agencies have with different providers.
􀁺􇨠 Creates a single state-wide voice and data network (AZNET)—The same
contractor is required to develop a unified state voice and data network for
executive branch agencies. Many agencies used private contractors and their
own staff to develop their own networks linking together agency offices
throughout the State. The new contract will consolidate agencies’ individual
telecommunications networks into a single, privatized network called AZNET
(see Figure 1, page 4). For example, Yuma has more than ten individual circuits,
or transmission lines, from different agencies running to Phoenix. Those ten
individual circuits could be linked together in Yuma, and one connection to
Phoenix could handle all voice and data traffic from Yuma. The contractor
estimates that AZNET will reduce telecommunications costs by coordinating
these networks. Further, it will enable state agencies to take advantage of new
The Legislature has
required privatization of
telecommunications
services for all executive
branch agencies.
Office of the Auditor General
page 3
State of Arizona
page 4
Figure 1: Planned Agency Network (AZNET)
Source: Auditor General staff analysis of the contractor's draft Network Convergence Architecture plan.
Tucson
Phoenix
Safford
Yuma
Parker
Globe
Kingman
Prescott
Flagstaff
Casa Grande
Benson
Nogales
Holbrook
Rural Sites—Rural agency offices
AZNET Consolidation Sites—11 sites around the State connecting rural agency
offices to the state network
AZNET—Main network sites located in Phoenix and Tucson
Legend
Office of the Auditor General
page 5
technologies that will allow them to contact each other directly over the network,
reducing local and long-distance service charges.
As a result of this change to a single provider for all telecommunications services, the
ATS was eliminated and the Telecommunications Program Office (TPO) was created.
Specifically, by consolidating telecommunications services under a single contractor
and developing a single, privatized telecommunications network, the ATS was no
longer needed to provide telecommunications services. This reduced the
Department’s budget by approximately $13 million and eliminated 55.6 FTEs who
previously worked for the ATS. Most of the FTE reduction was handled by employees
transferring to the contractor or other state employment, or through attrition.
In order to oversee the contract, for fiscal year 2006, the
Department received legislative approval to establish
the TPO with 22 positions and a budget of nearly $2.2
million. The TPO is not part of the Information Services
Division, but instead reports directly to the
Department’s director. TPO responsibilities include
ensuring that the contractor meets the terms of the
contract, ensuring contractor invoices are accurate,
reviewing documents provided by the contractor,
working with the Telecommunications Executive
Governance Committee (TEGC) and other committees
formed to facilitate the transition to the contractor, and
managing the transition of agency
telecommunications services to the new contractor.
The Department has housed 11 of the TPO’s 22
positions in the Information Services Division to assist
agencies with the privatized network. Specifically, the
Department has 2 positions to staff a help desk that
receives initial support calls from agencies,
documents the calls, and passes the information to the
contractor for resolution; 7 positions to operate the
state switchboard to route calls from state agency
employees and the public to other state agency
employees, as well as facilitate conference calls; and
2 security investigator positions to investigate
telecommunications fraud, inappropriate Internet use,
and other telecommunications crimes related to the
privatized network.
What Is the TEGC?
The Telecommunications Executive Governance
Committee is made up of the directors or deputy
directors of 13 state agencies:
Departments of:
Administration
Agriculture
Commerce
Corrections
Economic Security
Environmental Quality
Game and Fish
Public Safety
Revenue
Transportation
Water Resources
Arizona Health Care Cost Containment System
Arizona State Retirement System
The TEGC manages and governs the TPO, oversees
the contractor’s performance, and reviews and
approves plans for new telecommunications projects.
Operating budgets
Through fiscal year 2005, the Division’s operating budget consisted primarily of
monies appropriated from the Technology and Telecommunications Fund. The
revenues consisted of charges assessed to state agencies for the various services
the Division provides, which were deposited into the fund; legislative appropriations;
grant monies; and monies from the sale of telecommunications and automation
assets. The Division’s revenues are intended to offset its operational costs, and the
Division raises or lowers its fees to match expenditures. If revenues exceed
expenditures, the Division refunds the monies to agencies. Table 1 (see page 7)
illustrates the Division’s actual revenues and expenditures for fiscal years 2003
through 2005. The Division received approximately $30.3 million in revenues in fiscal
year 2004, and an estimated $27.4 million in revenues in fiscal year 2005. According
to the Division, revenues fluctuate yearly because agencies’ use of division services
varies from year to year.
Effective July 1, 2005, the Legislature eliminated the Technology and
Telecommunications Fund and created the Automation Fund to support the
Information Services Division and the Telecommunications Fund to support the
Telecommunications Program Office. For fiscal year 2006, the Automation Fund was
appropriated $23.7 million, and the Telecommunications Fund was appropriated
nearly $2.2 million.
Audit scope and methodology
This audit focused on the security of the various information systems for which the
Department is responsible, including its internal network, state network, data center,
and the single, privatized state network that is under development; and the
Department’s oversight of the transition to a single, private provider for
telecommunications services and the privatized network. The report presents
findings and recommendations in the following areas:
􀁺􇩔 The Department should take several steps to improve security on various
information systems, including its internal network and the state network, which
contain critical applications and data, by centralizing responsibility for security.
􀁺􇩔 The TPO needs to adequately oversee the process for conducting an inventory
of state agency telecommunications equipment, and ensure that the contractor
develops an appropriate security plan for the privatized telecommunications
network.
State of Arizona
page 6
The report also presents other pertinent information regarding how the contractor will
bill agencies for telecommunication services and the potential impact of contractor
charges for these services on state agencies’ telecommunications budgets
beginning in fiscal year 2008.
Auditors used various methods to study the issues addressed in this report, including
interviewing department, division, TPO, and other state agency officials and staff, and
reviewing the Division’s and the TPO’s financial information and statutes. Auditors
also used the following specific methods:
􀁺􇩔 To evaluate the effectiveness and sufficiency of the Division’s information system
security, auditors reviewed the Division’s policies and procedures, including
those related to security awareness training and risk analysis, and also toured
the data center. To test department security procedures, auditors reviewed
Office of the Auditor General
page 7
Table 1: Technology and Telecommunications Fund1
Schedule of Revenues and Expenditures, in Thousands
Years Ended June 30, 2003, 2004, and 2005
(Unaudited)
2003 2004 2005
(Actual) (Actual) (Estimated)
Revenues:
Charges for services $34,917 $30,265 $27,385
Expenditures and transfers:
Personal services and employee-related 9,598 10,050 9,968
Professional and outside services 1,233 1,698 1,513
Travel 74 65 52
Other operating 7,590 7,404 5,152
Equipment 11,186 10,642 8,492
Allocated costs 267 276 268
Total expenditures 29,948 30,135 25,445
Net operating transfers out 24 22 14
Total expenditures and operating transfers 29,972 30,157 25,459
Excess of revenues over expenditures and operating transfers $ 4,945 $ 108 $ 1,926
1 Represents the financial activity of the Technology and Telecommunications Fund. Beginning in fiscal year 2006, the fund was
divided into two new funds, the Automation Operations Fund and the Telecommunications Fund, in accordance with Laws 2005, First
Regular Session, Chapter 301. The Automation Operations Fund will be used to pay the costs of any automation applications the
Department implements, and the Telecommunications Fund will be used to pay for costs incurred in operating the
Telecommunications Program Office. The Department reports that approximately $11.1, $10.2, and $7.8 million of the expenditures
presented above for 2003, 2004, and 2005, respectively, were for activities that the Telecommunications Program Office will be
performing.
Source: Auditor General staff analysis of financial information provided by the Department of Administration from its Arizona Financial
Information System for the years ended June 30, 2003 and 2004, and department-prepared estimates for the year ended
June 30, 2005. (Actual information was not available at the time of this report.)
division security patch management logs and inspected a sample of 12
department computers for the presence of security updates, virus protection,
and nonbusiness-related software. In addition, auditors inspected 20 desktops,
laptops, and servers at State Surplus Property to ensure that the hard drives had
been properly erased. To measure the effectiveness of the Division’s security
practices, auditors compared the Department’s security practices to two
resources on IT controls and security and to GITA’s Statewide Standards for IT
security.1,2,3 To determine IT resource configuration practices in other state
agencies, auditors interviewed security managers from the Departments of
Economic Security and Public Safety. To identify past evaluations of the
Division’s IT security practices and determine the Division’s response to these
evaluations, auditors reviewed scans of the Department’s network from 2004
and a consultant’s IT security assessment of the Division from 2001. Finally, to
review access controls, auditors analyzed reports and data from the mainframe
security system, the Human Resources Information Solution system, and the
Department’s local area network.
􀁺􇨠 To evaluate the Department’s oversight of the transition to a single, private
provider for telecommunications services, auditors identified the contract’s
intent and requirements by reviewing the state agency telecommunications
privatization services’ contract statement of work, the offerer’s proposal, other
contract documents, and GITA’s 2003 Telecommunications Roadmap. To
identify and evaluate the Department’s process for carrying out this intent,
auditors reviewed draft documents related to the transition process, such as the
draft security architecture plan; and convergence and transition plans from the
Department’s telecommunications contractor; and inventory records sheets and
draft proposals for using state monies for agency projects; attended a meeting
of the Telecommunications Executive Governance Committee and other
telecommunications-related committees; and compared the contractor’s draft
security plan to standards and best practices from the National Institute for
Standards and Technology and to guidelines published in the IT Governance
Institute’s Control Objectives for Information and Related Technology.4,5
State of Arizona
page 8
1 U.S. Department of Commerce. Technology Administration. An Introduction to Computer Security: The NIST handbook.
NIST Special Publication 800-12. Gaithersburg, MD: National Institute of Standards and Technology, Oct. 1995.
2 U.S. Government Accountability Office. Federal Information System Controls Audit Manual (GAO/AIMD-12.19.6).
Washington, D.C.: U.S. Government Accountability Office, Jan. 1999.
3 U.S. Department of Commerce. Technology Administration. Guideline on Network Security Testing. NIST Special
Publication 800-42. Gaithersburg, MD: National Institute of Standards and Technology, Oct. 2003.
4 COBIT Steering Committee. COBIT: Governance, Control, and Audit for Information and Related Technology. 3rd ed.
Rolling Meadows, IL: IT Governance Institute, 2000.
5 U.S. Department of Commerce Technology Administration. Guide for Developing Security Plans for Information
Technology Systems. NIST Special Publication 800-18. Gaithersburg, MD: National Institute of Standards and
Technology, 1998.
􀁺􇨠 To gather information related to the contractor’s billing practices and service
charges, auditors reviewed the Department’s planning documents; the
Department’s 2004 Total Cost of Ownership study and department draft
documents updating the study for 2005; relevant portions of the contractor’s
proposals, such as its pricing workbook; and documents related to the transition
to the new, single provider for telecommunications services, including a
contractor’s telecommunications bill for April 2005.
􀁺􇩔 To gather information for the Introduction and Background section, auditors
reviewed unaudited information from the Department’s and GITA’s November
2002 report to the Joint Legislative Budget Committee on the Arizona
Telecommunications Service, the Joint Legislative Budget Committee fiscal year
2006 appropriations report, the statement of work from the telecommunications
contract, the July 2005 Arizona Department of Administration personnel listing,
and other information provided by the Division.
The audit was conducted in accordance with government auditing standards.
The Auditor General and staff express appreciation to the director of the Department
of Administration and the staff of the Information Services Division and the
Telecommunications Program Office for their cooperation and assistance throughout
the audit.
Office of the Auditor General
page 9
State of Arizona
page 10
Several actions needed to improve information
security
The Department should take a variety of actions to further ensure the security of the
State’s information systems and the data stored on them. The Department maintains
and secures some of the State’s most sensitive IT resources and data, including
driver’s license, vehicle registration, and medical information. While the Department
performs some security functions well, it does not perform other important security
functions, which increases these systems’ vulnerability to unauthorized entry and
potential manipulation. To improve security, the Department should emphasize
security planning by designating someone to be responsible for the overall security
effort of its internal network and the data center, and by including more security
requirements in the intergovernmental service agreements with state agencies that
use the data center. In addition, the Department should request authority from the
Legislature to enforce security requirements for the state-wide network, or AZNET.
Finally, the Department needs to improve its own network security by taking steps to
keep sensitive information off the Information Services Division Web site and
changing how it sets up IT devices.
Security of information systems important
As computer technology has advanced, agencies have become increasingly
dependent on computerized information systems to carry out their operations and to
process, maintain, and report essential information. Adequate security of information
and the systems that process it is a fundamental management responsibility.
Information security includes issues such as restricting and allowing access to
systems and applications, setting up hardware and software to ensure appropriate
access, securing buildings and rooms that house critical hardware and software, and
conducting background checks of the personnel who work directly with critical
information systems. Nationally, government officials are increasingly concerned
about attacks from individuals and groups with malicious intent, which appear to be
Office of the Auditor General
FINDING 1
page 11
increasing. For example, the number of reported incidents handled by Carnegie-
Mellon University’s CERT Coordination Center increased from 21,756 in 2000 to
137,529 in 2003.1
The Department is responsible for the security of information resources and the data
that resides on them. The Department maintains an internal network and also
operates and maintains the data center, which runs computer applications and
serves as a data repository for its own systems and those of many state agencies.
For example, the data center handles both the Department’s own Human Resources
Information Solution, which contains data associated with payroll, personnel,
employee benefits, and other associated functions for state employees, and the
Arizona Department of Transportation’s Motor Vehicle Division data that includes
names, addresses, social security numbers, driving records, and vehicle records.
Department performs some security functions well, but
lacks coordinated security program
While the Department performs some security functions well, it lacks a
comprehensive and coordinated security program with several essential features.
The Department has adequately performed some security functions, such as
ensuring that its desktop computers have up-to-date virus protection and security
updates. However, the Department has not performed several important security
functions, such as conducting network scans and tests, and it has failed to develop
comprehensive policies and provide ongoing security training.
Department performs some security functions well—As shown in Table 2
(see page 13), the Department conducts some important activities that help to
ensure IT resources’ security. For example, auditors examined 12 desktop
computers, along with the Department’s security update logs and alerts, and found
that these computers had current security updates and virus protection. In addition,
auditors found that data on all 20 department computers and servers that were at the
State’s Surplus Property in May 2005 were erased or destroyed according to Surplus
Property requirements. The Department also adequately restricts personnel access
to the data center and requires sufficient password protection for both its desktop
computers and the mainframe.
Other security functions not performed well—While the Department takes
some steps to provide a basic level of protection, it does not perform many security
functions that national standards dictate. The Department needs to take additional
steps to more fully guard against the kinds of intrusions attempted by hackers or
The Department
appropriately disposes
of surplus hardware
equipment.
1 Originally called the Computer Emergency Response Team, the center was established in 1988 by the Defense
Advanced Research Projects Agency. It is charged with (1) establishing a capability to quickly and effectively coordinate
communication among experts in order to limit the damage associated with, and respond to, incidents and (2) building
awareness of security issues across the Internet community.
State of Arizona
page 12
Network—A group of two
or more computers linked
together by cables,
telecommunications lines,
or radio waves.
others seeking to gain inappropriate access to sensitive data and systems.
Specifically:
􀁺􇩎 Network scanning inconsistent—The Department has performed some network
scanning in the past, but it does not perform regular monitoring and testing of
its internal network in order to identify and address potential vulnerabilities. By
scanning the network, the Department could identify potential vulnerabilities,
such as any unauthorized computers connected to the network and any
unauthorized services on the network. As illustrated in Table 3 (see page 14), the
National Institute of Standards and Technology (NIST) recommends several
network scans and tests that should be conducted on a regular basis to help
identify potential weaknesses and vulnerabilities that expose networks to
increased risk of unauthorized access.1 For example, NIST recommends
that organizations perform a network scan continuously to quarterly for
systems that provide security such as firewalls, and semi-annually for low-risk
systems such as those that a firewall protects. However, according to
the Department, the last complete scan of the Department’s network was
done in 2001, while in 2004, the Department contracted for a scan of only
the Human Resources Information Solution application. This lack of
1 The National Institute of Standards and Technology issues information security standards for all federal agency
operations except national security systems.
Office of the Auditor General
page 13
Table 2: Security Functions the Department Performs Well
Function Audit Results
Desktop computer security • Security and virus protection software was current on all 12
department computers that auditors tested.
Data Center physical
security
• Access was controlled by electronic keycards.
• Electronic keycards were issued and collected from terminated
employees promptly.
User access (mainframe
system)
• Password length was sufficient.
• Employees changed passwords every 30 days.
• All user IDs were unique.
User access (desktop
computers)
• Employees changed passwords at appropriate intervals.
Disposed-of computers and
servers
• Data on all 20 computers and servers present at Surplus
Property in May 2005 was erased according to policy.
Source: Auditor General staff analysis of mainframe system and network user account parameters and
Auditor General staff inspection of data center, desktop computers, and disposed-of computers
and servers.
Firewall—A system
designed to prevent
unauthorized access to or
from a private network. It is
considered the first line of
defense in protecting
private information.
monitoring and testing increases the risk of network intrusion, which could allow
a hacker to gain access to sensitive systems and data.
􀁺􇨠 Independent security assessments not obtained—The Department has not
obtained an independent security assessment since 2001 and does not have a
policy defining the frequency and under what circumstances such assessments
should be obtained. According to NIST, an organization should obtain an
independent review of its security controls at least once every 3 years and more
frequently for critical systems. The Department last obtained such an
assessment in 2001, when it paid more than $310,000 to a private contractor to
conduct a security assessment that looked at areas such as the Department’s
security policies and procedures, mainframe security, and network
vulnerabilities. However, the Department has not since contracted for an
independent security assessment of its operations, even though that
The Department has not
performed a complete
network scan since
2001.
State of Arizona
page 14
Table 3: Network Testing and Recommended Frequency
Test Type and Benefits
Recommended
Frequency1
Network scanning
• Lists the network structure, computers, and associated software
• Identifies unauthorized computers connected to a network
• Identifies public connections to computers
• Identifies unauthorized services
Continuously
to semiannually
Vulnerability scanning
• Lists the network structure, computers, and associated software
• Identifies a target set of computers to focus vulnerability
analysis
• Identifies potential vulnerabilities on the target set
• Validates that operating systems and major applications have
up-to-date security and software
Bimonthly to
semiannually
Penetration testing
• Determines how vulnerable an organization's network is to
penetration and the level of damage that can be incurred
• Tests IT staff's response to perceived security incidents and its
knowledge and implementation of the organization's security
policy and system’s security requirements
Annually
1 Frequency depends on the system’s sensitivity.
Source: U.S. Department of Commerce. Technology Administration. Guideline on Network Security
Testing. NIST Special Publication 800-42. Gaithersburg, MD: National Institute of Standards
and Technology, Oct. 2003.
assessment identified many concerns with the Department’s internal and state-wide
networks. For example, in the 2001 assessment, reviewers found that the
Department was running an unsecure version of an operating system and that
many computers had inappropriate open public connections.
􀁺􇩒 Risk assessments not performed—While the Department has a policy detailing
how to conduct a risk assessment, it has not performed a comprehensive risk
assessment. A risk assessment identifies and evaluates a particular potential
vulnerability’s risk and its potential impact on information systems to determine
the extent of a potential threat and appropriate actions to mitigate the threat.
Risk assessments should be performed and documented on a regular basis, at
least every 3 years or whenever systems, facilities, or other conditions change.
Risk assessments consider data sensitivity, the need for integrity, and the range
of risks that might affect an entity’s systems and data. These assessments
would help the Department determine how best to complete other oversight
functions, such as network scanning. According to a department official, it has
not conducted risk assessments because it was not considered a high priority.
􀁺􇩃 Corrective actions not tracked, monitored, and implemented effectively—When
significant weaknesses are identified, the related risks should be reassessed,
appropriate corrective actions taken, and follow-up monitoring performed to
make certain that corrective actions are effective. However, the Department has
not created a formal follow-up process to ensure that identified weaknesses are
tracked and effective corrective actions taken. Failure to take effective corrective
actions results in the Department’s continuing to leave both its own and state
information resources vulnerable. For example, the Department has not taken
actions to address many of the weaknesses identified in the 2001 security
assessment, such as sensitive information being made available on its Web site.
Security policies and training inadequate—The Department does not
ensure that staff have the tools to understand security requirements. Specifically:
􀁺􇩓 Security policies and procedures not adequate—The Department lacks
comprehensive security policies and procedures, and the few it does have do
not provide sufficient detail or have not been updated since 2000. For example,
the Department does not have a policy regarding the use of wireless
connections to prevent unauthorized access to internal networks even though
wireless communications are being used within the Department. Failure to
define such standards increases the risk of providing a pathway for
unauthorized users to access a network. According to GITA, state agencies are
responsible for creating any necessary policies and procedures in order to
establish a security program. Additionally, the Department’s 2001
comprehensive security assessment, for which the Department contracted,
found its security policies and procedures lacking. Therefore, the assessment
The Department has not
performed a
comprehensive risk
assessment.
Office of the Auditor General
page 15
1 U.S. Government Accountability Office. Federal Information System Controls Audit Manual (GAO/AIMD-12.19.6).
Washington, D.C.: GAO, Jan. 1999.
recommended that the Department create more detailed policies and
procedures, and that the department director sign all security policies and
procedures in order to ensure central management approval and buy-off.
􀁺􇩏 Ongoing security awareness training not conducted—The Department does not
provide its employees with ongoing security awareness training. Training that
informs department employees of necessary security policies, such as not
revealing one’s password, should be conducted at initial hire and on an ongoing
basis. Although GITA and department policy requires both initial and annual
training, department employees currently receive training only at the time of
initial hire. Failure to provide ongoing security awareness and training to
employees increases the risk that users could misuse data or resources, or that
unauthorized personnel could gain access to data or resources.
Department should implement coordinated information
security program
In order to ensure that a coordinated information security program is in place, the
Department should take two steps. First, the Department should establish a position
responsible for all security functions so that security is better emphasized within the
Department. Second, it should enhance its interagency service agreements with
agencies that use the data center to better define each party’s responsibilities for
information security. In addition, the Department should request the statutory
authority to enforce minimum standards for AZNET users.
Security functions should be centralized—To ensure that the Department
has a coordinated security program that includes the features described above and
that it meets its responsibility for securing its internal network and the data center, the
Department should establish a centralized and comprehensive security program.
Although the Department has a state-wide security manager, this position does not
have the responsibility to ensure compliance with accepted security standards or that
the Department performs the necessary activities to help ensure the security of the
networks, systems, and data for which it is responsible. Instead, this position
responds to and attempts to address individual security questions and problems as
they arise, such as stopping corrupted computers from sending out e-mails
contaminated with a virus. However, the U.S. Government Accountability Office noted
in its study of organizations with leading information security practices that these
organizations had established centralized security responsibilities.1 By doing so, the
organizations ensure that they had adequate security policies and that these policies
address security risks on an ongoing basis.
State of Arizona
page 16
The Department should
assign a person to
oversee a
comprehensive security
program.
Office of the Auditor General
page 17
Therefore, the Department should assign one of its positions, such as the state-wide
security manager, the responsibility for security of the Department’s internal
information resources and network, as well as the data center. This position should
be responsible for administering a comprehensive security program that would
address:
􀁺􇨠 Developing a policy governing network scanning, monitoring, and testing,
including how it should be done, the frequency, and follow-up procedures;
􀁺􇩏 Obtaining an independent security assessment at least every 3 years and
developing policies regarding under what circumstances it would obtain an
independent assessment more frequently;
􀁺􇩃 Conducting risk assessments on a regular basis, at least every 3 years and as
needed when systems, facilities, or other conditions change;
􀁺􇨠 Developing a system to follow up on identified risks and weaknesses to ensure
that they are addressed;
􀁺􇨠 Developing adequate security policies and procedures and ensuring that they
include sufficient detail; and
􀁺􇩐 Providing annual security awareness training as provided for in both GITA and
department policy.
The Department has begun to address some of these specific items. For example, it
plans to develop recommended policies and procedures for network scanning and
monitoring and obtaining independent security assessments, to begin performing
scans of its internal network by September 2005 and conducting risk assessments
by November 2005, and establishing ongoing training by September 2005. However,
the Department should ensure that it has assigned the responsibility for ensuring that
these activities are completed to one of its positions. The Department should also
determine if it needs additional staff, funding, and technical resources to perform
these additional security duties, and if so, assess whether it could reassign existing
staff and resources or take other steps, as appropriate, to seek additional staff and
resources.
Security responsibilities should be defined in interagency service
agreements—In order to adequately protect the information systems maintained
in the data center, the Department should enhance its interagency service
agreements with state agencies that use the data center. While the Department has
agreements with these agencies, these agreements lack specific details regarding
responsibilities for system and application security. For example, one agreement
stated that the Department would provide system security support and the agency
would provide security for applications, but it did not provide additional detail.
According to GITA policy, agencies may develop agreements to help ensure
sufficient and acceptable security protection for all participating agencies. Therefore,
the Department should develop agreements that define minimum security
standards, how the Department will monitor compliance with the policies and
procedures, and how standards will be enforced. The agreements should also
delineate the Department’s responsibility to provide access to the state data center
and the state agency’s responsibility to meet specific, minimum security
requirements. Further, the agreements should define the circumstances under which
a state agency may face actions and the actions the Department may take. For
example, the Department could restrict a state agency’s access to the data center
for failure to comply with those security requirements. This would allow the
Department to better ensure that vulnerabilities or corrupted computers in one
agency do not compromise the systems of other agencies that use the data center.
According to the Department, beginning in August 2005, more detailed security
requirements will be included in these agreements as the current agreements expire.
Statutory authority needed to ensure sufficient security over
AZNET—The Department should request statutory authority from the Legislature to
enforce the specific minimum security requirements state agencies must follow
related to AZNET. The Department’s enabling statutes charged it to “provide for an
efficient and coordinated utilization of automation equipment, techniques and
personnel to achieve optimum effectiveness … and productivity in the … security of
information.” However, when GITA was created in 1996, this wording was removed
from the Department’s statutes, and GITA was given statutory authority to issue state-wide
security standards. However, GITA was not given operational authority to
enforce its standards. This resulted in a lack of statutory authority to enforce security
standards for information systems shared by state agencies. Specifically, although
GITA has the responsibility for setting state-wide security standards and is
considering designating a staff member to serve as the State’s chief security officer,
its functions do not include the daily oversight of AZNET that would be necessary to
enforce its standards.
If one state agency does not sufficiently secure its resources, it potentially exposes
the other state agencies using a shared resource, such as AZNET, to an increased
risk of data loss or hacker intrusion. Therefore, the Department should ask the
Legislature to amend A.R.S. §41-712 to give the Department statutory authority to
enforce security requirements on state agencies using AZNET. This authority should
permit the Department to ensure that agencies using AZNET meet security
standards, as defined by GITA. The Department’s responsibilities would extend to
implementing GITA policies and standards and working with GITA to develop
operational minimum security standards with regard to AZNET. For example, GITA
requires that state agencies review, test, and audit firewall policies, but is not specific
about how frequently this should occur. The Department would need to work with
GITA to develop a policy for AZNET users to follow regarding the minimum frequency
of such reviews and how to deal with agencies that fail to effectively implement
State of Arizona
page 18
firewalls. In addition, the Department would need to ensure that any authority to
enforce security standards is included in its comprehensive security program.
Department needs to better limit access to its information
system resources
The Department has not implemented sufficient measures to restrict public access
to its information system resources. This could potentially allow unauthorized
personnel to access sensitive information. Specifically:
􀁺􇩓 Sensitive information on Web site—The Information Services Division does not
centrally control the content on its Web site, and as a result, sensitive information
is available on the Internet. The Division has been aware of this problem since
the 2001 comprehensive security assessment recommended that it remove
such material from its Web site. However, the Division has continued to maintain
sensitive information on its Web site. During the audit, the Division began to
review the content available over the Internet and to draft a policy that would
govern Web content. The Division should ensure that the policy requires central
review and approval of Web site content to ensure that sensitive information is
not available to the public. Additionally, the Division should ensure that sensitive
information is removed from its Web site, and instead maintain any sensitive
information in a more secure environment, such as the Department’s internal
network, which is not available to the public.
􀁺􇩐 Poor configuration of devices—GITA standards require that internetworking
devices such as routers and switches, and shared platforms such as servers,
be set up in a way that limits potential access by unauthorized external users.
However, department devices are configured in a manner that potentially allows
them to be identified and manipulated by unauthorized external users. GITA
standards define how these devices should be set up to guard against such
external risks, and the Department should configure its resources to comply with
those standards.
The Division has kept
information that could
compromise the security
of sensitive data and
systems on its Web site.
Office of the Auditor General
page 19
Recommendations:
1. The Department should designate a central authority, such as its state-wide
security manager, with the responsibility for developing a comprehensive
security program for the Department’s internal information resources and
network, as well as the data center. The Department should then ensure that the
program addresses:
a. Developing a policy governing network scanning, monitoring, and testing,
including how it should be done, the frequency, and follow-up procedures
to correct identified vulnerabilities;
b. Ensuring that it obtains an independent security assessment at least every
3 years and developing policies regarding the circumstances under which
it would obtain an independent assessment more frequently;
c. Conducting risk assessments at least every 3 years and as needed when
systems, facilities, or other conditions change;
d. Developing a system to follow up on identified risks and weaknesses to
ensure that they are addressed;
e. Developing adequate security policies and procedures and ensuring that
they include sufficient detail; and
f. Providing annual security awareness training as provided for in both GITA
and department policy.
2. The Department should determine if it needs additional staff, funding, and
technical resources to perform additional security duties, and if so, assess
whether it could reassign existing staff and resources or take other steps, as
appropriate, to seek additional staff and resources.
3. The Department should request that the Legislature amend A.R.S. §41-712 to
give the Department statutory authority to enforce security requirements for state
agencies using AZNET. If the Department receives such authority, it should
ensure that it becomes part of its comprehensive security program in
conjunction with the first recommendation.
State of Arizona
page 20
4. The Department should enhance its interagency service agreements with state
agencies that use the data center to define the Department’s and the agencies’
security responsibilities. The agreements should:
a. Delineate the Department’s responsibility to provide access to the state
data center and the state agency’s responsibility to meet specific, minimum
security requirements; and
b. Define the circumstances under which a state agency may face actions for
failure to comply with those security requirements, and the actions the
Department can take to better ensure that corrupted systems in one
agency do not compromise other agencies’ systems and data.
5. The Information Services Division should better ensure that it does not publish
sensitive information on its Web site by developing a policy requiring central
review and approval of Web site content. The Division should also review current
Web content to ensure that sensitive information has not remained on its Web
site, and instead maintain any sensitive information in a more secure
environment, such as the Department’s internal network, which is not available
to the public.
6. The Department should configure its information system resources, such as
routers, switches, and servers, to comply with GITA standards to provide greater
safety from external threats.
Office of the Auditor General
page 21
State of Arizona
page 22
Improved oversight of telecommunications
consolidation and privatized network needed
The Department should improve its oversight of two activities related to consolidating
telecommunications support services and developing a single, privatized
telecommunications network. To consolidate these services, the Department and its
contractor will perform several activities, including addressing existing
telecommunications contracts and conducting an inventory of agency
telecommunications equipment. However, the inventory process is being conducted
by state agency staff and the contractor without sufficient department oversight.
Given the potential impact of this process on additional costs to the State, the
Department should reassign staff to oversee the inventory process, or, if necessary,
reallocate existing funding or take other steps, as appropriate, to hire a private
contractor to oversee the process. Additionally, to protect the network, the
Department should work with its Information Services Division to ensure that the
contractor develops an adequate security plan that meets the contract requirements
and contains all the features of an appropriate security plan.
Agencies will phase in consolidated telecommunications
management
In order to consolidate the management of state agency telecommunication services
under one contractor, the Department and its contractor need to perform several
activities. These include a phased approach to consolidating the management of all
executive branch agency telecommunications services under a single contractor
who will provide telecommunications, equipment maintenance, long distance, and
other telecommunications services. Prior to the contract, state agencies
independently obtained these services from the Department or other contractors.
Office of the Auditor General
FINDING 2
page 23
The contractor will transition agencies to a single provider for telecommunications
services in two phases. With the completion of Phase 1, the contractor began
offering services and billing those agencies that previously had telecommunications
services supplied by the Department’s Arizona Telecommunications System (ATS).
According to department records, this accounted for approximately 30 percent of
voice and data telecommunications services provided to state agencies. Agencies
separately obtained the remaining 70 percent of telecommunication services. During
the summer of 2005, the contractor and the Department evaluated the results of the
Phase 1 transition, updated transition plans for Phase 2, and began transitioning the
remaining state agencies to the contractor providing telecommunications services.
This transition to a consolidated telecommunications management under the
contractor consists of several additional changes to each agency’s operations. As
each agency is transitioned, several processes will be carried out, including:
The Arizona
Telecommunications
System provided about
30 percent of the voice
and data services
provided to the State.
State of Arizona
page 24
When will agencies be transitioned?
Phase 1: According to the Department, Phase 1 was substantially completed by the beginning of
July 2005. During that time, the contractor began offering services and billing agencies that
previously had telecommunications services provided by the Department’s Arizona
Telecommunications System. These agencies include the Department of Education, the Arizona
State Parks Board, and the Department of Commerce.
Phase 2: The following agencies that used other contractors for telecommunications services are
scheduled for transition beginning in August 2005. The Department expects all agencies to be
transitioned by March 2006:
• August 2005—Arizona Health Care Cost Containment System, the Departments of Revenue,
Game and Fish, and Environmental Quality, and the Arizona School for the Deaf and Blind.
• September 2005—The Department of Transportation and the Department of Corrections.
• October 2005—The Department of Economic Security.
• November 2005—The Department of Education, the Arizona State Retirement System, and
Boards and Commissions.
• December 2005—The Department of Public Safety.
• January 2006—Remaining state agencies.
􀁺􇨠 Implementing contractor management systems—The contractor will implement
management processes and software systems necessary to provide
telecommunications services to each agency. The contractor plans to
implement an electronic billing system within each agency, install a system
linking the agency to a help desk used for requesting telecommunications
support or services, and implement an asset inventory management system that
records and tracks the telecommunications equipment the agency owns.
􀁺􇩒 Resolving current agency telecommunications services contracts—The
contractor will work with the Department’s Telecommunications Program Office
(TPO) and each agency to review existing telecommunications services
contracts. This will involve a review of each contract to determine whether the
contractor will manage the contract itself on behalf of the agency, terminate it
and provide the services itself, or allow the State to retain and continue to pay
the contract. The TPO has assigned staff to assist in this process and work with
the agency and the contractor to identify and review the agency’s existing
contracts. The contractor intends to terminate most existing agency contracts
for telecommunications maintenance and support, and transfer the work to itself
or its subcontractors. The Department and the contractor believe there will be
little difficulty in replacing contracts, according to the TPO staff member
assigned to help in this process, because the TPO has encouraged agencies to
adopt short-term contracts with their current vendors. The contractor indicates
that it will retain contracts where it is appropriate to do so; for example, where
there is a substantial termination penalty.
􀁺􇩐 Performing an inventory—The contractor, with the help of agency staff, will
conduct a physical inventory of each agency’s telecommunication assets. As of
July 2005, a department official indicated that the physical inventory process
was complete for the agencies transitioned to the single provider as part of
Phase 1. As each agency transitions during Phase 2, its telecommunications
equipment will be inventoried. An accurate, state-wide inventory of this
equipment does not currently exist, and one is needed to determine precisely
what equipment exists at state agencies and whether it is obsolete. While the
Department estimated that there were approximately 40,000 telephone sets
state-wide prior to entering into the contract, the contract requires a precise
counting of state telecommunications assets covered under the contract.
Therefore, the Department plans to request that agencies document their
telecommunications equipment, identifying the manufacturer’s version of the
equipment; location of telephones, voice, and wide-area network telephone
circuits; and telecommunications software applications. The contractor will
attempt to confirm these records using a combination of site visits and
diagnostic tools, and record the assets in a centralized database.
An accurate, state-wide
inventory of
telecommunications
equipment is needed to
assess agencies’
equipment needs.
Office of the Auditor General
page 25
Department should oversee inventory process
The Department should assign a technology expert to oversee the process of
identifying and categorizing state telecommunications equipment. An accurate
inventory of this equipment is needed to determine an agency’s telecommunications
equipment needs and costs under the contract, and to identify costs for equipment
upgrades. However, although the performance and outcome of the inventory will
have a significant effect on the revenues that the contractor can earn under the
contract, the Department has not dedicated sufficient resources to oversee this
process. Instead, it plans to rely on agency staff and the contractor to develop the
inventory and thus determine additional costs under the contract for equipment
upgrades. Therefore, the Department should review the TPO’s current staffing
assignments and reassign staff to this function, or alternatively seek additional
resources from the Legislature or a private contractor to adequately oversee the
inventory process.
Inventory process can impact contract costs—The performance and
outcome of the inventory of state telecommunications equipment will have a
significant effect on the revenues that the contractor can earn under the contract.
Specifically, the inventory process will help determine each agency’s flat fee for
telephone service. Under the contract, telephones are divided into seven categories
and associated service costs depending on the features of the phone. For example,
the contractor’s fees to provide telecommunications service for a single-line
telephone are approximately $40 less than fees for a multi-button phone with a
display that might be used by a call center supervisor. Based on the Department’s
initial estimate of 40,000 telephones state-wide, determining the actual number and
types of telephones that the network will serve will significantly affect the contractor’s
revenues.
Additionally, an accurate inventory of current telecommunications
equipment is necessary to determine whether this equipment can be
successfully integrated into the network. The inventory process will
determine if agency telecommunications equipment that connects to the
network, such as routers or other equipment, such as PBX or key systems,
will need to be upgraded. The contract specifies that if this equipment is
within two versions of the manufacturer’s most recent version of the
equipment, the contractor will upgrade this equipment at no additional
charge. However, if the equipment is no longer supported by the
manufacturer, the state agency will need to purchase the upgrade
separately since it would not be covered under the contract. Therefore, not
only will the contractor assist in developing an accurate inventory, it will
determine which assets that must be upgraded are already covered under
the contract and which assets that must be upgraded are not covered, thus
identifying potential additional costs.
State of Arizona
page 26
What are routers, PBX,
and key systems?
A router is a device that forwards data
along networks.
PBX and key systems are private
telephone networks used within an
enterprise that route telephone calls
between users and allow for the sharing
of a certain number of outside lines for
making calls external to the system.
Finally, a correct inventory of assets is important because the process can allow the
contractor to adjust its contract prices. Specifically, because there was insufficient
information available before the contract was signed, the contract allows the State or
the contractor to revise the scope or prices in the contract once each year. At the
end of the contract’s first year, if the inventory is significantly different from the original
estimates, the contractor can negotiate with the State to adjust its prices.
Department has not dedicated staff to oversee the inventory
process—Despite the potentially significant impact of the inventory process, the
Department has not dedicated personnel to oversee this process. Specifically, the
Department does not have on its staff an expert in the technologies being inventoried
and evaluated to assist agencies with identifying their current equipment, ensuring
equipment is properly identified and categorized, and overseeing the contractor in
this process. Even though the Department has dedicated staff to oversee other
transition activities, such as transferring current agency telecommunications
contracts to the new vendor or overseeing billing, it has not done so for the inventory
process. While the Department originally planned to hire an expert in
telecommunications technology to assist in the inventory process, according to an
agency official, the Department has not obtained this expertise due to budget and
staffing constraints. Instead, the Department continues to rely on agencies and the
contractor to develop accurate inventories of their telecommunications equipment. A
department official also indicated that two staff will be available to assist agencies
and answer their questions. However, these staff have other responsibilities and may
not have the necessary expertise or time to actually oversee the inventory process.
While the Department believes this process mitigates the concern regarding the
inventory process, because of the importance of this inventory process and its effect
on contract costs, the Department should assign a technology expert to oversee this
process. Specifically, the Department should review the TPO’s current staffing
assignments to determine if it can reassign personnel within the TPO to review Phase
1 inventories and oversee Phase 2 inventories. The TPO employs 22 full-time staff,
including contract managers and financial analysts. The Department should review
these staff members’ skills to determine if they have sufficient expertise in
telecommunications technology to appropriately oversee the inventory process. If the
Department determines it is more appropriate to obtain additional staff or expertise,
it should reallocate existing funding or take other steps, as appropriate, to hire a
private contractor to assist in overseeing the inventory process.
Department should improve oversight of network security
To adequately protect the telecommunications network, the Department should
ensure that the contractor develops an adequate security plan that fulfills all contract
The Department needs
to oversee the inventory
process.
Office of the Auditor General
page 27
requirements and contains all appropriate security plan features. The current plan
being developed by the contractor and the Department does not include every
contractually required feature. Additionally, the Department should ensure that the
security plan adequately addresses other important features, including processes for
regularly monitoring the network and enforcing compliance with security standards.
Network security plan does not address all contract requirements—
The contractor has not developed an adequate security plan as required by the
contract. The contract requires the contractor to develop a security plan that
addresses security responsibilities for the state-wide network. These include
managing firewalls that protect the State’s systems that connect to the Internet and
operating equipment that detects and reports intrusions on the network. Ensuring
adequate security for this network is important since agencies will use it to process
and transmit vital and sometimes confidential information. Developing a security plan
also helps to ensure that the contractor will take the necessary steps to assure the
security of the network and that these steps are consistent with the Information
Services Division’s security framework and policies and procedures.
The contractor’s planning efforts thus far do not include all of the contractually
required features. As a preliminary step to creating the plan, the contractor submitted
a “centralized security plan” in April 2005. This plan covers high-level security issues
such as the contractor’s philosophy of how security will be carried out and high-level
design features, such as the security services the contractor offers. According to
department staff, once the Department accepts this plan, the contractor plans to
meet with representatives of state agencies to complete a more detailed network
security plan, which is estimated to be completed by late 2005. While the centralized
security plan covers some detailed information on the equipment used, the plan
does not include features called for in the original contract as part of an overall
network security plan. Specifically:
􀁺􇩐 Plan does not include Security Service Level Agreements (SLAs)—According to
the contract, the network security plan should include SLAs addressing security
concerns and issues. An SLA details the contractor’s responsibilities and the
penalties assessed to contractors if they violate any element of the SLA. For
example, an SLA might specify penalties to the contractor if the network is
unavailable to state users for more than a specified amount of time each month.
While the contract calls for the plan to include security SLAs, the architecture
plan does not include any SLAs detailing contractor responsibilities, or penalties
in the event the contractor fails to prevent data concerning the public or agency
operations from being stolen, deleted, or altered.
􀁺􇨠 Plan does not address state-wide security standards—The contract requires
that the network security plan comply with the Government Information
Technology Agency’s (GITA’s) standards for information technology security.
However, auditors compared the centralized security plan to GITA’s standards
Network security is
critical since agencies
will process and
transmit vital and
confidential information
on the network.
State of Arizona
page 28
and determined that the plan does not address some of these standards. For
example, this plan does not address developing a process, including necessary
controls, to protect the network through ongoing computer program updates,
and does not call for proactively conducting periodic tests to identify and correct
network vulnerabilities.
􀁺􇩐 Plan does not include periodic security awareness and training—The contract
requires the network security plan to include periodic network security
awareness and training for agency personnel. However, the centralized security
plan does not address this issue. This training, which the contractor is required
to provide, is supposed to educate agency personnel on issues that affect
security vulnerability.
Department should ensure an adequate security plan is
developed—The Department, working with the contractor, has taken steps to
begin incorporating some of the missing elements. Specifically, after reviewing the
plan and meeting with auditors, the Department began working with the contractor
to incorporate security SLAs and to address state-wide security standards and
training in a complete security plan that will be developed by late 2005, before the
first agency begins operations on the network. Moreover, the Department should
work with its Information Services Division to ensure that the revised plan
appropriately addresses the contractual requirements and includes any monitoring,
testing, or compliance policies or procedures that the Division develops.
In ensuring this plan’s adequacy, the Department should also determine if it meets
appropriate national standards and benchmarks for what constitutes effective
network security management. For example, an internationally recognized set of
information technology guidelines notes that a successful security plan should define
clear security monitoring and enforcement processes, such as how potential security
breaches or other incidents will be identified, reported, and monitored.1 Moreover,
according to NIST, federal security plans should include analyses of the sensitivity of
the information that the system handles, management controls in place to protect the
system, the systems’ threats and vulnerabilities, and a plan for independent review
of the system’s security. NIST also recommends that organizations get independent
advice and comment on the security plan from individuals within or outside of the
organization, such as the organization’s IT security manager.2 Therefore, the
Department should work with its Information Services Division to ensure that the
contractor’s security plan appropriately includes these relevant aspects of a good IT
security plan. Finally, the Department should develop a process for monitoring the
contractors and work with them to annually update the security plan to reflect any
changes in state-wide network and security standards.
The network security
plan should incorporate
national guidelines and
benchmarks for effective
network security.
1 COBIT Steering Committee. COBIT: Governance, Control and Audit for Information and Related Technology,
Management Guidelines, Critical Success Factors: DS5—Ensure Systems Security. 3rd ed. Rolling Meadows, IL: IT
Governance Institute, 2000.
2 U.S. Dept. of Commerce, Technology Administration. Guide for Developing Security Plans for Information Technology
Systems. NIST Special Publication 800-18. Gaithersburg, MD: National Institute of Standards and Technology, 1998.
Office of the Auditor General
page 29
Recommendations:
1. The Department should improve oversight of the inventory process by:
a. Reviewing the TPO’s current staffing assignments and reassigning staff to
this function or, if necessary,
b. Reallocating existing resources or taking other steps, as appropriate, to hire
a private contractor to adequately oversee the inventory process.
2. The Department should ensure that the contractor develops an adequate
network security plan that includes the following:
a. Requirements stipulated by the contract, including security service level
agreements, compliance with GITA’s state-wide security standards, and
periodic security awareness and training for agency personnel; and
b. Other relevant aspects of an appropriate information technology security
plan, such as defining clear security monitoring and enforcement
processes, and how potential security breaches or other incidents will be
identified, reported, and monitored.
3. The Department should develop a process for monitoring the contractors and
work with them to annually update the security plan to reflect any changes in
state-wide network and security standards.
State of Arizona
page 30
During this audit and in response to a legislative inquiry, auditors collected other
pertinent information related to the billing process and costs under the
telecommunications contract.
Contractor billing system will bring changes
The contractor for the privatized telecommunications network will employ a different
billing system from the one used by Arizona Telecommunications Services (ATS) to
pay for carrier services. In the past, carriers invoiced ATS, and ATS immediately paid
them. Thirty days later, ATS added carrier charges to its monthly agency bills, giving
agencies an additional 30 days to pay their bills. As a result, agencies were paying
for carrier services up to 2 months after ATS received the invoice. In contrast, the
contractor will take 10 days to process the bill then pass the carrier charges directly
to the agency, giving the agencies 20 days to pay. Because changing from ATS to
the contractor involves removing 30 days from the billing process, during the first
year, the contractor will create an extra 13th-month bill. The monthly bill will contain
charges for the five following basic services:
􀁺􇩐 Per-Seat Charges—The contractor will
introduce “per-seat charges,” or
monthly fees, to agencies for each
telephone set (seat) the contractor
services. The per-seat charge varies by
the telephone type and features added
to the telephone. The per-seat charge
covers a variety of costs, including the
costs for monitoring and managing
network equipment; upgrading
equipment and software that was
current at the time the contract was
signed; and providing network security
(see Finding 2, pages 27 through 29).1
1 Under the contract, equipment and software is current if it is within two versions of the manufacturer’s most recent release.
Office of the Auditor General
OTHER PERTINENT
INFORMATION
page 31
What Comprises
a Per-Seat Charge?
For a single-line telephone with no long-distance capability
located on the Capitol Mall in Phoenix or Tucson, the contractor
will charge $42.20 per month during fiscal year 2008. If the
telephone has the capacity to place calls over the state network,
the fee is $46.11. The contractor adds additional charges for
features such as $3 per month for each added phone or fax line,
and $4 per month for a 22-button, add-on module.
Source: Telecommunications outsourcing contract pricing worksheets.
In contrast, ATS did not charge agencies a per-seat fee. Instead, it charged
agencies separately for many of the costs covered under the per-seat pricing
schedule.
􀁺􇩍 Moves, Adds, or Changes (MACs)—The contractor will also charge for service
calls beyond a maximum number allowed under the per-seat charges. The per-seat
charge includes labor and material costs for some alterations or changes
to an agency’s telephone system. Each year, an agency can have a maximum
of one MAC that does not require a service call from the contractor for each
telephone the contractor services and a maximum of one MAC that involves a
service call for every five telephones the contractor services. For example, if an
agency wanted to reset a password or add voice mail, the contractor would not
have to come to the agency, but could perform the changes using remote
software. However, changing from one type of phone to another could be
considered a MAC that requires a site visit. The contractor will charge additional
fees for MACs above the maximum amounts. As of June 2005 the contractor
and the TPO had not determined these fees.
􀁺􇩐 Project Charges—The contractor will also charge agencies for major projects
that are not included in the per-seat charges and are too extensive to qualify as
MAC charges. Examples of such projects include adding equipment, replacing
equipment that is no longer supported by the manufacturer, or removing older
telephone equipment and replacing it with new technologies.
􀁺􇩃 Carrier Charges—The contractor will bill agencies for local and long-distance
service and data services supplied by telephone companies, or carriers, such
as Qwest. However, the contractor is adding new technology through the
privatized network that will allow agencies to reduce these types of telephone
costs by routing calls between state agencies through the network rather than
using traditional phone lines.
􀁺􇨠 Administration Costs—The contractor’s bill will also include charges to reflect
the Department’s costs for administering this contract. These costs are
estimated to be $2.5 million annually for fiscal years 2006 through 2010. These
include personnel costs for staff in the TPO to oversee the contract and operate
a help desk. Additionally, bills will include a charge to recover nearly $500,000 in
costs for department office space and associated costs at buildings that the
contractor and TPO use.
Telecommunications contract costs
To assist state agencies with the transition to privatized telecommunications services,
agency costs for telecommunications services in fiscal years 2006 and 2007 will be
held at their fiscal year 2004 estimated amounts. Specifically, while the contractor has
State of Arizona
page 32
developed a cost estimate of approximately $40 million annually to provide
telecommunications services to the State, it has also agreed to maintain individual
agencies’ telecommunications costs for fiscal years 2006 and 2007 at their fiscal year
2004 estimated amounts. However, more current estimates of state agency
telecommunications spending indicate that agencies’ spending will be more than $8
million less than contract and administrative costs per contract year, and the
Department is exploring several options to address this deficit.
Pricing plan sets agency telecommunications costs at fiscal year
2004 amounts—The contractor has agreed to provide telecommunications
services for approximately $40 million per year when agencies are fully transitioned
to contractor-provided services. The contractor’s pricing proposal is consistent with
a 2004 department study of total state agency telecommunications spending.
Specifically, since agencies have not historically created separate
telecommunications budgets or accounted for all of their
telecommunications costs, the Department conducted a study to
estimate agency telecommunications expenditures during fiscal year
2004. This study estimated that agencies paid $39.9 million for
telecommunications services in fiscal year 2004.
As part of its proposal, the contractor has agreed to hold each individual
agency’s telecommunications costs at or near their estimated fiscal year
2004 amounts for fiscal years 2006 and 2007. In addition to developing
an estimate of state-wide expenditures for telecommunications services,
the department study also found that agencies paid drastically different
rates for telecommunications services. For example, during fiscal year
2004, the Department of Corrections spent approximately $45 per seat
in telecommunications costs, while the Department of Game and Fish
spent over $140 per seat. According to a department official, these cost
differences result from agencies’ differing telecommunications services
needs. However, these costs also served as the basis for agency
telecommunications budgets in fiscal years 2006 and 2007. Therefore, the
TPO indicates that if the contractor’s prices were charged to each agency
immediately, some agencies would significantly exceed their telecommunications
budgets, while others would be well under their budgets. As a result, for fiscal years
2006 and 2007, the contractor will adjust agency bills to make them consistent with
their estimated fiscal year 2004 expenditures.
Revised estimates result in need for additional agency spending—An
ongoing analysis of recent agency spending suggests agencies may need to find
ways to increase their telecommunications funding to match what they will be
charged under the contract. After the contract was awarded, the Department
updated its 2004 study and as of August 2005, estimated that agencies spent only
about $35 million for telecommunications services in fiscal year 2005. In addition to
the contractor costs, as previously mentioned, the Department plans to charge
agencies approximately $3 million in administrative costs to oversee the contractor,
The contractor’s
transitional pricing will
allow agencies to
prepare for 2008
telecommunications
contract costs.
Office of the Auditor General
page 33
Estimated Contract Costs
Fiscal Year Amount
20061 $21,418,000
2007 39,659,000
2008 39,499,000
2009 39,000,000
2010 39,000,000
1 Fiscal year 2006 costs are lower because
state agencies will not be completely
transitioned to contractor-provided services.
Source: Contractor’s contract pricing
workbook.
operate a help desk, and pay for other costs, such as rent for office space. This
represents a more than $8 million difference between estimated agency
expenditures in 2005 and the fiscal year 2006 and 2007 contract and administrative
costs.
The Department is proposing several actions to address this funding deficit for fiscal
years 2006 and 2007. First, according to department staff, the Department is
proposing to deter $3.1 million in contractor charges for fiscal year 2006 until fiscal
year 2007 or later. State agencies will eventually need to pay their amount plus
interest. To address the remaining fiscal year 2006 deficit, department staff indicated
that the Department is working with the Governor’s Office of Strategic Planning and
Budgeting and the contractor to develop other options, including using up to $1.7
million in carrier cost savings to offset agencies’ costs. For fiscal year 2007, the
Department is proposing that agencies approach the Legislature for a supplemental
budget request to fund the approximately $8 million deficit
between estimated agency spending and the contract
costs, and to begin to pay the $3.1 million deferred from
fiscal year 2006. According to department staff, the
Department plans to continue to work with agencies to
revise agency spending estimates, and intends to submit a
proposal to the TEGC in September 2005 for addressing the
deficit.
Beginning in fiscal year 2008, the contractor will stop
adjusting each agency’s bills to match 2004 spending.
Recognizing that agencies’ costs may change, the
Legislature passed Laws 2005, Chapter 301, requiring the
Department to report to the Joint Legislative Budget
Committee a consolidated telecommunications budget
report demonstrating the previous fiscal year’s actual
payments and the next year’s anticipated payments for state
agency telecommunications services. Since all agencies will
be affected by this pricing change starting in fiscal year
2008, some agencies may need to adjust their budgets to
reflect the changes in telecommunications costs.
State of Arizona
page 34
What Are Carrier Cost Savings?
According to the contractor, the move to a single,
privatized telecommunications network should result in
some cost savings that originally were to be reinvested in
the state-wide network. Prior to this new contract, state
agencies could purchase their voice or data connections
independently, creating multiple and separate
telecommunications network connections. Cost savings
would result from the contractor consolidating unneeded
voice and data connections and adding new technologies
allowing agencies to route interagency calls through the
telecommunications network to save on telephone toll
charges. The Department originally planned to use this
savings to support various agency telecommunications
projects, such as upgrading agency equipment attached
to the network, but has since proposed using this money
to assist with transition pricing.
Office of the Auditor General
AGENCY RESPONSE
State of Arizona
Janet Napolitano
Governor
Jerry A. Oliver, Sr.
Interim Director
ARIZONA DEPARTMENT OF ADMINISTRATION
OFFICE OF THE DIRECTOR
100 North 15th Avenue • ROOM 401
PHOENIX, ARIZONA 85007
(602) 542-1500
September 21, 2005
Debbie Davenport
Auditor General
2910 North 44th Street, Suite 410
Phoenix, Arizona 85018
Dear Ms. Davenport:
The Department of Administration appreciates the efforts of the Auditor General’s Office and
professionalism in conducting the sunset audit for the Information Systems Division and newly
created Telecommunications Program. These are dynamic areas where the department
attempts to use technology for the betterment of state government. We as a department
understand there is always room for improvement in any of our business activities. The
Department appreciates the patience and discipline of the Auditor General’s office during this
audit, especially when the Department is in the midst of the major transformation taking place
in the outsourcing of telecommunications for all state government.
The Department appreciates the importance of security in today’s current technology
environments, and to that end, has established a robust framework with the AzNet program to
address network security through the outsourced contract that will effectively raise the security
posture for all state government. We are keen to pursue the ideas suggested for legislative
action to better serve state agencies. We also realize that AZNET security, in particular, needs
to be a funded activity within ISD so there is a division of responsibilities between ISD and
TPO/AZNET.
Sincerely,
Jerry A. Oliver
Interim Director
Enclosure
ADOA Agency Response, by Section and Finding
Auditor General Recommendations - ISD
1. The Department should designate a central authority, such as its state-wide security
manager, with the responsibility for developing a comprehensive security program for
the Department’s internal information resources and network, as well as the data center.
The Department should then ensure that the program addresses:
a. Developing a policy governing network scanning, monitoring, and testing,
including how it should be done, the frequency, and follow-up procedures to
correct identified vulnerabilities;
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing with
the finding will be implemented. While we agree with the recommendation to
establish the policies, the Department is concerned there may not be sufficient
funding for implementing those policies. As with b. and c. below, this is often
beyond what our customers expect and can pay for, which by default, will cause
conflicts with our customers.
b. Ensuring that it obtains an independent security assessment at least every 3
years and developing policies regarding under what circumstances it would
obtain an independent assessment more frequently;
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing with
the finding will be implemented. While we agree with the recommendation to follow
best practices, the Department is concerned there may not be sufficient funding for
independent security assessments at that frequency.
c. Conducting risk assessments at least every 3 years and as needed when
systems, facilities, or other conditions change;
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing
with the finding will be implemented. While we agree with the recommendation to
follow best practices, the Department is concerned there may not be sufficient
funding for risk assessments at that frequency.
d. Developing a system to follow up on identified risks and weaknesses to ensure
that they are addressed;
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
e. Developing adequate security policies and procedures and ensuring that they
include sufficient detail; and
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
f. Providing annual security awareness training as provided for in both GITA and
department policy.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
2. The Department should determine if it needs additional staff, funding, and technical
resources to perform additional security duties and if so, assess whether it could
reassign existing staff and resources or take other steps, as appropriate, to seek
additional staff and resources.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
3. The Department should request that the Legislature amend A.R.S. §41 -712 to give the
Department statutory authority to enforce security requirements on state agencies using
AZNE. If the Department receives such authority, it should ensure that it becomes part
of its comprehensive security program in conjunction with the first recommendation.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented. While we agree with the intent of the recommendation, the Department is
concerned there will exist a conflict in statutory authority between 41-172 and the
existing authority of GITA for statewide security, including the extent of the
recommendation to GITA to create a Chief Security Officer role for state government.
The Department will work with GITA to determine the best approach to address the gap
in current statutes to enforce enterprise architecture security standards for AzNet, while
ensuring conflicts are not created with the statutory authority being sought.
4. The Department should enhance its interagency service agreements with state
agencies that use the data center to define the Department’s and the agencies’ security
responsibilities The agreements should:
a. Delineate the Department’s responsibility to provide access to the state data
center and the state agency’s responsibility to meet specific, minimum security
requirements; and
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
b. Define the circumstances under which a state agency may face actions for
failure to comply with those security requirements, and the actions the
Department can take to better ensure that corrupted computers in one agency do
not compromise other agencies’ systems and data.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
5. The Information Services Division should better ensure that it does not publish sensitive
information on its Web site by developing a policy requiring central review and approval
of Web site content. The Division should also review current Web content to ensure that
sensitive information has not remained on its Web site, and instead maintain any
sensitive information in a more secure environment, such as the Department’s internal
network that is not available to the public.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
6. The Department should configure its information system resources, such as routers,
switches, and servers, to comply with GITA standards to provide greater safety from
external threats.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Auditor General Recommendations - TPO
1. The Department should improve oversight over the inventory process by:
a. Reviewing the TPO’s current staffing assignments and reassigning staff to this
function or, if necessary,
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing
with the finding will be implemented. The FY06 budget request included
technical staff that were not in the final appropriation. The TPO will look to other
agency resources on an ad hoc basis.
b. Reallocating existing resources or taking other steps, as appropriate, to hire a
private contractor to adequately oversee the inventory process.
Agency Response:
The finding of the Auditor General is agreed to and a different method of dealing
with the finding will be implemented. The FY06 budget request included
technical staff that were not in the final appropriation. The Department will
implement a detailed process including resources of the AzNet team, the TPO
and the other Agencies during the transition of an Agency onto the AzNet
contract.
2. The Department should ensure that the contractor develops an adequate network
security plan that includes the following:
a. Requirements stipulated by the contract, including security service level
agreements, compliance with GITA’s state-wide security standards, and periodic
security awareness and training for agency personnel; and
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation
will be implemented. This finding may require legislation (as identified in finding
recommendation #3) to enforce security requirements on state agencies using
AZNET.
b. Other relevant aspects of an appropriate information technology security plan,
such as defining clear security monitoring and enforcement processes, and how
potential security breaches or other incidents will be identified, reported and
monitored.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
3. The Department should develop a process for monitoring the contractor and work with
them to annually update the security plan to reflect any changes in state-wide network
and security standards.
Agency Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented
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